News Archives - May / June 2011
Thursday, June 30, 2011
TMX Merger Off
TMX Group Inc. and the London Stock Exchange Group plc have terminated their merger agreement. A majority of shareholder votes cast by proxy prior to the June 28 cut off supported the merger resolution. However, it was clear that the two-thirds threshold required to approve the merger would not be achieved. TMX Group says it will continue to pursue its growth objectives and it will review the company's opportunities, including the offer from Maple Group Acquisition Corporation.
Integrated Workplace Injury Program Created
Manulife Financial group benefits has launched ‘Occupational Management Services’ to address the needs of employers dealing with injuries that occur at work by creating an integrated workplace injury and disability benefits program. One feature is that it provides employers with the ability to integrate workplace injury claims support with long-term disability programs. It offers end-to-end support for all aspects of occupational injuries including claim filing, return to work support, financial claims, and program management.
Mental Health Disability Recurrence Happens Sooner
The recurrence of an employee's medical leave of absence from work tends to happen much sooner with a mental health leave than a physical one, says a Centre for Addiction and Mental Health (CAMH) study. Most workers who take a mental health leave from their jobs remain free of disability leave for at least two years. In contrast, most who have had a physical health disability leave have almost four years before a second episode. "If we understand the timing of a repeated episode, as well as who is at risk of having a recurrence, we can develop more effective prevention programs to help people stay at work," says Dr. Carolyn Dewa, study lead and head of CAMH's Centre for Research on Employment and Workplace Health.
Spouses Left Unprepared
While workers have become more involved in retirement planning, too often just one member of the family takes care of investments and strategy, leaving the spouse unprepared to take over if needed, says Fidelity Investments. It says 41 per cent of couples handle retirement investment decisions together. That means just one person ‒ usually the husband ‒ handles the retirement planning for a majority of families. More worrisome is the fact that only 17 per cent of couples say either spouse is prepared to assume sole responsibility of their retirement finances if necessary. Women, who are more likely to survive their husbands, are not at all confident that they could take over. Just 35 per cent of wives say they are completely confident in their ability to do so, while 72 per cent of husbands say they can.
Next Wellness Step Taken
Equitable Life of Canada has taken the next step in its health and wellness solutions by introducing an online health assessment tool to help plan members better understand and manage their health. With the tool, plan members respond to a series of questions regarding health indicators as well as their health preferences (nutrition, exercise, and/or workplace sponsored events) through a user-friendly online platform. This feedback can then be used to support group benefit and wellness resource decisions and efforts. This can strike an effective balance between the employer's need for benefits cost management while providing practical and useful health tools that show plan members that their health is valued.
Improving Plans Prompts Changes
Defined Contribution plan executives that changed recordkeepers or primary investment managers within the past 24 months said improving plans was a major reason for the switch, says a Spectrem Group survey. It shows 85 per cent of respondents cite upgrading the plan as one of their motivations (for changing recordkeepers or primary investment managers) compared to just 54 per cent who mention poor performance of the previous provider. On average, a plan stays with its provider for 6.6 years, although 29 per cent switched after three years or less.
Research Facility Launched
State Street has launched a research facility to provide clients with insights into the current and future state of the investment management industry. The Centre for Applied Research will conduct primary research and work with resources within the financial services industry and across State Street to produce research on topics important to investors worldwide. The published research will offer insights on the future of financial markets and the global asset management industry.
Wednesday, June 29, 2011
Solutions Offered For Small And Medium-sized Businesses
ADP Canada has launched an end-to-end benefits management solution for small and medium-sized businesses. ADP Canada Insurance Agency Inc. will tailor benefits to the needs of the business and its employees through the use of data-driven benchmarks and business analytics. As well, it will provide a modernized benefits management perspective that gives employers the insights to make better business decisions. Finally, it will create payroll, HR, and benefits administration efficiencies to give employers more time to focus on their people and their businesses.
Investor Confidence Slips
After a brief recovery in May, State Street’s ‘Investor Confidence Index’ fell back below 100 to settle at 99.2. This represents a decline of 5.1 points from May’s revised reading of 104.3. The decline was most pronounced among North American investors, whose confidence fell 5.8 points to 100.4 from May’s revised level of 106.2. Asian investors also reduced their risk appetite with investor confidence falling 3.7 points to 93.2 from a revised May reading of 96.9. Perhaps somewhat surprisingly, European investor confidence rose 8.5 points from May’s revised level of 79.4 to reach 87.9.
Inflation Concerns Sponsors
A majority of Defined Benefit plan sponsors are concerned about the threat of inflation and the potential impact it can have on plan assets, says RBC Dexia Investor Services. Its latest survey of Canadian pension plan sponsors found that the largest plans are increasing their allocations to infrastructure assets and other alternatives to act as a natural hedge against inflationary pressure. When asked to indicate their level of concern about the threat of inflation and the impact on plan assets, 84 per cent of plan members reported some degree of concern (ranging from extremely concerned to somewhat concerned), whereas only a small population, 16 per cent, indicated they were not concerned at all. Measures and strategies being taken, or contemplated, to mitigate against inflationary trends include the use of real return bonds in portfolios.
Institutions Have $1.1 Trillion In Hedge Funds
Institutional investors globally had about $1.1 trillion invested in hedge funds at the end of the first quarter, says research from Citi Prime Finance. Pension funds globally accounted for 53 per cent or $594 billion of the $1.1 trillion of institutional investments in hedge funds, compared to 27 per cent or $297 billion for endowments and foundations, and 20 per cent or $220 billion for sovereign wealth funds. Institutional assets represented only about 20 per cent of the hedge fund market or $125 billion as of March 31, 2002.
Assets Reach Pre-crisis Level
Global assets under management reached their pre-crisis level at the end of 2010 at $52.8 trillion and are expected to increase by a compound annual rate of 7.5 per cent to $75.6 trillion by year-end 2015, says the annual report by Cerulli Associates. ‘Cerulli Quantitative Update: Global Markets 2011’ found the U.S. remained the largest market. However, it is also the slowest growing market with assets under management estimated to increase at a compound annual rate of 6.8 per cent to $36.4 trillion by year-end 2015 from $26.2 trillion as of December 31. Asia ex-Japan is the fastest-growing region at a rate of 12.8 per cent compounded annually and is expected to reach $4 trillion as of December 31.
ESG Indices Offered
MSCI has launched a range of 25 ESG indices developed specifically for pension funds and other institutional investors. It says the new indices will help clients integrate ESG factors into their investment processes. Nine of the new indices have been developed for use by institutional investors who wish to avoid investments in cluster bombs, landmines, chemical, biological, and depleted uranium weapons. Five of the indices have been constructed to include companies with the highest MSCI ESG Research ratings, while excluding companies with investments in controversial industries such as tobacco, nuclear power, and GMOs. It has added 11 new regional and country indices to its family of MSCI Global ESG Indices. It says these ‘best-of-class' indices represent a broad investment opportunity set of the highest-rated companies in each sector, designed to track closely to their parent indices.
Equitable Adds Critical Illness Insurance
Equitable Life of Canada has joined forces with ACE Canada to offer group critical illness insurance to help protect plan members. It provides plan members who survive a serious illness or injury a lump sum payment in addition to any benefits they receive under the overall group benefits plan. This lump sum payment can be used to help cover healthcare costs, assist in alleviating the financial burden associated with serious illness or injury, or any other need identified by a plan member.
Tuesday, June 28, 2011
Funds Want More Innovation
Pension funds are asking asset managers for more innovation, but only where specific principles are met that better match their needs, says a report from CREATE-Research. 'Investment Innovations' says pension plans believe emerging market equities, emerging market bonds, high yield bonds, liability driven investing, and exchange traded funds (ETFs) have delivered good value for money over the last decade. They attribute the success of these innovations to strong belief in their intrinsic worth, a disciplined approach to buying and selling, and in-house capabilities to chase 'early-mover' advantage. Leverage, structured products, portable alpha, and currency funds delivered the least value for money.
Disability Management Training Developed
Morneau Shepell is offering an educational initiative for its professionals who counsel clients in disability management. The Health Management Centre of Learning, which is a partnership with the University of Fredericton, offers advanced online training in the fundamentals of disability management. The program consists of three levels (core, advanced, and continuous education) comprising 23 modules.
Early Saving Rarely Optimal
The Journal of Pension Economics and Finance says starting to save for retirement in the first phase of one's career is rarely optimal, says Aon Hewitt’s ‘Radar.’ This is because the burden of financing retirement should first be allocated to periods with higher income and lower opportunity costs, thus creating the potential for an initial period without savings when incomes grow. At the opposite end of the savings cycle, research also indicates that when retirees maintain all investment and longevity risk, a 100 per cent allocation to growth assets is optimal for large expenditure desires relative to initial balance levels.
Fixed Income Allocations Rising
Pension funds and other institutional investors increased their fixed income allocation to their highest levels in five years while simultaneously paring down their equity exposure, says research by Invesco. Its ‘11th European Institutional Asset Management Survey’ found allocations to fixed income rose to 58 per cent in 2010, up from 51 per cent the previous year and the highest level since 2006. Equities fell back to 27 per cent of assets in 2010 from 29 per cent in 2009, but still well above the crisis-year level of 25 per cent in 2008. Alternatives remained stable at about 12 per cent of portfolios. Corporate bonds were the main focus of investors' growing interest in fixed income.
Fee Variation Surprising
Pension schemes are paying vastly different fees for the same levels of service and even with the same provider, says Atkin & Co, a UK pensions scheme administrator and actuarial consultant. It says the discrepancy in fee levels appears to affect medium-sized pension schemes more than their smaller or larger brethren. Big, multi-national schemes receive a priority service in general. They are also more likely to have regular fee and advisor reviews. At the other end of the scale, very small schemes are restricted by what they can afford and often have no choice but to review and control fees as far as possible. It is the experience of schemes in the middle range which varies to a surprising extent. It says there doesn’t seem to be any difference in service levels which would explain the discrepancy in annual running costs for these schemes. This seems to indicate that, for many schemes, fees could be reduced significantly by reviewing the fee structure, challenging advisors over the nature and extent of work that is being carried out, and conducting regular advisor reviews.
Benefits Negatively Affected
The economy negatively affected the employee benefits offered by more than three-quarters of organizations, says the Society for Human Resource Management (SHRM). Its survey says 77 per cent of surveyed HR professionals said in 2011 that the economy negatively affected benefits to some or to a large extent, an increase from 72 per cent in 2010. In addition, the national survey found that more employers offered benefits that put responsibility on employees for managing retirement savings, leave, and healthcare costs. The majority of organizations (84 per cent) provide a preferred provider organization for employee healthcare, with only a third of employers using health maintenance organizations.
401(k) Balances Hit Record High
The average account balance among participants in 401(k) plans record-kept by Vanguard Group reached a record $79,077 last year, a 14.5 per cent increase from 2009. The previous record average balance was $78,411 in 2007. The 2010 average balance is the highest since Vanguard started keeping score in 1999. The higher average account balance in 2010 reflects a combination of market gains and participant contributions. The median account balance of $26,926 in 2010 also was a record. The previous high was $25,953 in 2006.
Brandes Expands Relationship
Brandes Investment Partners & Co. has expanded its investment servicing relationship with State Street Corporation to include its Canadian pooled funds. State Street will provide custody, accounting, financial reporting and taxation services, securities lending, and performance analytics and will be the trustee and transfer agent for the Canadian pooled funds. The funds total $1 billion in assets.
SERP Not Standalone Document
The Ontario Court of Appeal has dismissed an appeal, upholding a lower court's earlier declaration that an employee who was terminated at age 52 was not entitled to an unreduced pension at age 62, says Aon Hewitt’s ‘Radar.’ In Revios Canada Ltd. v. Creber, the appellant was a member of an employer registered pension plan and a Supplemental Executive Retirement Plan (SERP) designed to top up benefits on retirement. According to the plan provisions, members with at least 10 years of continuous service could take early retirement at age 55 and were entitled to a deferred pension. If taken before age 65, but not before age 62, this deferred pension would be unreduced. As a result of a reference to early retirement in the SERP, the appellant argued that he was entitled to receive an unreduced deferred pension at age 62, despite the fact that his employment was terminated before he had attained age 55. The court found the plan was the principal pension document with the SERP only providing "supplemental" benefits. As such, the SERP could not create substantive rights that were at odds with the conditions for entitlement created by the plan, such as the right to receive an unreduced deferred pension when termination occurred before age 55. As noted by the court, "the fact that the member can choose to begin receiving his or her pension early is not the same thing as early retirement.”
Medland Joins Meridian
Monday, June 27, 2011
Barrier To De-risking Reduced
Placing the upside and downside of most risks associated with Defined Benefit plans outside of P&L expense, as proposed in International Accounting Standard no. 19 (IAS 19), may remove a perceived barrier to de-risking the plan through a reduction of the portion of the fund invested in equities or through the purchase of annuities, says a Mercer ‘Communiqué.’ It says amended IAS 19 prescribes the accounting and disclosure requirements for employee benefits including short-term employee benefits; post-employee benefits such as pensions, retiring allowances, and retiree medical and life insurance plans; other long-term benefits such as long-service awards, long-term paid absences, and long-term disability benefits; and termination benefits. The increased disclosures and reduction in the options open to plan sponsors should improve comparability and reduce any misinterpretations of accounts. Plan sponsors will need to revisit their disclosures and decide exactly what will be disclosed and how to meet the disclosure objectives outlined. However, sponsors of certain funded supplemental retirement plans should review treatment of taxes in the accounting for these plans.
Boomers Attracted To Guarantees
Boomers, by nearly a four to one margin, remain more attracted to guarantees for their retirement savings versus potential high returns with market risk, says Allianz Life Insurance Company of North America’s 2011 refresh of its ‘2010 Reclaiming the Future’ study. This marks the second year in a row for this behaviour. This year 76 per cent of respondents chose the guaranteed product with a four per cent return over a product with an eight per cent return that is subject to market risk and loss of principal. In 2010, 80 per cent of respondents chose the guaranteed product. It also found pessimism about retirement preparedness remains unchanged. More than a third (35 per cent) of respondents in both 2010 and 2011 said that, financially speaking, they feel totally unprepared for retirement.
Canadians More Committed To DB
Despite the challenges Defined Benefit pension plans have faced in Canada over the last two decades, Canadian employers that sponsor these plans seem more committed to maintaining them than organizations in the United States and the United Kingdom, says the third annual ‘Global Pension Risk Survey’ by Aon Hewitt. It found while there has been a decline in the number of Canadian organizations with DB plans over the years, there are more ongoing DB plans, relatively speaking, in this country than there are in other economies. In the 2011 survey, 39 per cent of Canadian respondents had closed their DB plans for existing members. That figure is close to 80 per cent in the U.S. and the UK. Canadian sponsors continue to offer DB plans because they align with total rewards philosophies (26 per cent), as a result of union pressure (21 per cent), and for competitive issues (15 per cent). As well, the proportion of respondents that have no long-term strategy for their plans has dropped substantially from 44 per cent a year ago to just 25 per cent today.
Jarislowsky Backs Maple Bid
Friday, June 24, 2011
Decision Credit Negative
A decision by the Court of Appeal of Ontario that gives Canadian pension claims priority in bankruptcy cases is credit negative for Canadian companies with underfunded Defined Benefit pension plans, says Moody’s Investors Service. The Ontario appeal court ruled in Indalex that claims arising from the underfunding of registered Canadian DB pensions are senior to all other liabilities. Moody’s says that while the ruling is case- and fact-specific, there is the potential of wide application across all underfunded DB plans. However, it adds that the decision’s impact on credit ratings would be very limited. Only two of the 84 Canadian industrial companies that Moody’s rates have debt that might be vulnerable to downgrade if the decision is affirmed. Neither of the two companies, Air Canada and Essar Steel Algoma Inc., have investment-grade ratings.
Pre-reform Distinctions Removed
As of July 1, 2011, the distinctions between pension pre-reform (1987) and post-reform periods will be substantially removed as amendments to the federal Pension Benefits Standards Act, 1985, in Bill C-9 and Bill C-47 are proclaimed in force, says a Fogler, Rubinoff LLP ‘Pension Alert.’' Since we are now in 2011, it says it is only the members with more than 25 years of service who may be affected. The changes include immediate vesting so once an employee has become a member of a pension plan, that member is entitled to a pension upon retirement. This does not mean that pension benefits necessarily start accruing immediately upon hire. The PBSA still permits a waiting period of 24 months before an employee becomes eligible to become a member of a pension plan. As well, pre-retirement death benefits will be applicable to all service. Employers/administrators that have not yet amended their federally regulated plans and systems of administration in the light of the provisions of Bill C-9 and Bill C-47 should do so to avoid errors in administration.
Engagement Top Concern
Employee engagement is the top human resource challenge organizations anticipate facing in the next three to five years, says a survey from the Society for Human Resource Management (SHRM). It ranked as ‘very important’ and topped a list of four challenges with 69 per cent of human resources professionals citing it as the top challenge followed by 63 per cent who noted employee retention. A little more than half, 53 per cent, of human resource professionals said employee recruitment is a ‘very important’ challenge they will face during the next three to five years, closely followed by 51 per cent who pointed to managing the organizational culture or culture management.
Gendron Graduate Of Honour
Normand Gendron, a principal and senior consultant in the Montreal, QC, office of Buck, has been named ‘2011 Graduate of Honour’ by the Université de Montréal’s Faculty of Arts and Sciences. The past president of the Canadian Institute of Actuaries, former board member of the International Actuarial Association, member of the Committee on Professional conduct, and member of the Canadian Actuarial Standards Board is a frequent lecturer at industry forums and past spokesperson for the Canadian Institute of Actuaries for radio and television interviews. The award pays tribute to honoured graduates who have distinguished themselves in Quebec society.
CIBC Mellon Makes Changes
Thursday, June 23, 2011
Past Performance Leads To Disappointment
Rogerscasey continues to believe that selecting asset managers based on past performance, especially within the equity space, will lead to disappointing results. Its 2010 performance persistence study shows that within the equity universe, four of the six peer groups failed to demonstrate persistence. One of the most notable observations of the studies is the lack of persistence for U.S. small cap growth and value managers. Clearly, it says, investors should steer clear of relying on trailing five-year performance numbers when selecting U.S. small cap equity managers. Three peer groups that have not historically demonstrated persistence did so in 2010 ‒ U.S. core plus fixed income, U.S. large cap value, and U.S. large cap core.
Pension Fund Sues Over Sino-Forest
The Laborers' Pension Fund of Central and Eastern Canada has filed a lawsuit against Sino-Forest, its directors and officers, auditor Ernst & Young LLP, and consulting firm Poyry Beijing. The action follows the meltdown of its shares amid allegations of accounting fraud. The lawsuit, which seeks class certification on behalf of Sino-Forest investors, says the company issued misleading financial statements including prospectuses for stock offerings that raised almost $950 million from investors. The collapse of Sino-Forest, a Canadian-listed Chinese company, has raised pressure on North American regulators to stem the tide of accounting scandals that has engulfed investors eager to tap into Chinese growth. The Ontario Securities Commission has opened a probe into the affair.
Private Sector Covers 53 Per Cent Of Prescription Costs
Nationally, 53 per cent of all Canadian prescription drug costs are reimbursed by the private sector, says Steven Semelman, president of Gemini Pharma Consultants Ltd. He told the Connex Health ‘Benefits Breakfast Club’ session ‘Why Generic Drug Pricing Legislation Is Not Enough,’ that of Canada’s 32 million citizens, 19 million have some sort of private drug coverage and they account for $15 billion in prescription drug costs annually. However, when it comes to controlling these costs, benefit consultants, insurers, pharmacy benefits managers, and employers continue to focus on the prescription drug costs and not pharmacy services. Benefits and Pensions Monitor was there and recorded Sullivan’s entire presentation. Watch it on ‘The Big Picture’ at http://www.bpmmagazine.com/bigpicturevideo
Social Media Shares Stage
Social media will share the stage with traditional communications at this year’s ‘Annual Conference of the Insurance & Financial Communicators Association (IFCA).’ This year’s theme is ‘Making Music With Media’ and the meeting will focus on how professional communicators can guide strategic use of all forms of media within their organizations. It takes place October 2 to 5 in Nashville, TN. For more information, visit www.ifcaonline.com
Wednesday, June 22, 2011
Mental Health Business Issue
Mental health in the workplace is costing Canadian organizations a lot of money and much of it is unnecessary, says a study by Morneau Shepell. ‘EAP Improves Health Status and Productivity, and Demonstrates a Positive ROI’ says that intervention through Employee Assistance Programs (EAPs) translates into improved employee mental health and higher productivity, as well as a 25 per cent reduction in costs due to lost productivity. "Mental health is a business issue in the Canadian workplace," says Karen Seward, senior vice-president, business development and marketing, Morneau Shepell. "People with mental health issues are uncomfortable at work and it affects their job. However, most managers have little or no training in how to manage employees with these problems. There is definitely a lot of room for education and improvement." It found 44 per cent of employees surveyed had experienced a mental health issue, but only 26 per cent of surveyed employees felt that their supervisor effectively managed mental health issues, and 44 per cent of managers had no training in how to manage employees with mental health issues. The Mental Health Commission of Canada estimates that mental illness costs the Canadian economy $51 billion a year in terms of healthcare service use, lost workdays, and work disruptions.
Stocks More Volatile In Long Run
When taking an investor’s perspective, stocks are, contrary to conventional wisdom, more volatile in the long run than the short run, says Lubos Pastor, Charles P. McQuaid Professor of Finance at the Booth School of Business, The University of Chicago. In a session ‘Are Stocks Really Less Volatile in the Long Run?’ at Dimensional Fund Advisors' ‘Toronto Investment Forum,’ he said the belief that stocks are less volatile over long investment horizons is based on the premise that return predictability is possible as a result of mean reversion. However, he contends the observable predictors imperfectly deliver the conditional expected return and the effect of mean reversion is more than offset by the combined effects of various uncertainties faced by investors. This means, he said, long-horizon investors need to reconsider their stock allocations.
Manitoba Paves Way To Sign Agreement
An amendment to Manitoba’s Bill 33 enables the province to enter into agreements with other Canadian jurisdictions regarding multi-jurisdictional pension plans, paving the way for the province to become a signatory of the new Agreement Respecting Multi-jurisdictional Pension Plans, issued by the Canadian Association of Pension Supervisory Authorities. It would join Ontario and Quebec as signatories to the agreement, says a Towers Watson ‘Advisory.’ The amendment provides more details on the scope and content of such agreements, for example, that they can state that a requirement of the PBA or regulation is deemed to be satisfied in respect of a particular pension plan by a corresponding requirement of the pension law of another jurisdiction. In addition, a new provision allows other Canadian jurisdictions to be designated as reciprocating jurisdictions by regulation, which will allow for the reciprocal enforcement of orders made under pension standards legislation.
Electronic Offers Advantages
Advantages of electronic over paper delivery of pension communications includes cybersecurity advantages such as email bouncebacks and sophisticated authentication protocols, says an Aon Hewitt ‘Radar.’ Citing research co-sponsored by the American Society of Pension Professionals and Actuaries, it says because of technological changes and widespread current access to the Internet, Defined Contribution plans should be able choose electronic delivery of pension communications as the default, subject to the right of individual participants to receive paper notices or information. It says other benefits of electronic communications include the ability to ‘layer’ information, provide ‘just-in-time’ capabilities, and combine with online tools such as calculators. As well, it allows for improved participant access, especially by the visually impaired, others with disabilities, and those whose first language is not English.
Currency Movement Challenging
Exchange rate movements are very difficult to predict, says Gerard K. O'Reilly, head of research and vice-president, Dimensional Fund Advisors. In the ‘Research Update’ at its ‘Toronto Investment Forum,’ he said currency hedging strategies might be used to add value in both equity and fixed income portfolios. However, the challenge was determining how currencies might move. Historically, he said, average monthly currency returns have not been statistically different from zero, while their volatility has been between three per cent and five per cent. As well, with differences in interest rates, the volatility of hedged versus unhedged may influence currency hedging decisions. One method used, Purchasing Power Parity, is not a useful tool for predicting short-term currency movements. However, he did say interest rates may be of some value as high interest rate currencies tend not to depreciate with respect to low interest rate currencies.
Auspice Launches Energy Program
Auspice Capital Advisors Ltd. has launched its ‘Energy Program,’ a managed futures strategy focused on global energy commodities. The program represents an opportunity for investors to access the institutional experience of its portfolio managers who previously managed energy portfolios for global energy company Shell Trading. The strategy is designed for investors looking to capture price movements in global energies such as crude, natural gas, heating oil, and also non-traditional energies such as carbon emissions and bio-fuels.
Exclusions Focus Portfolios
Excluding extreme small cap growth assets from portfolios can improve returns, says Robert T. Deere, investment director, senior portfolio manager, and vice-president, Dimensional Fund Advisors. During the ‘Investment Update’ at its ‘Toronto Investment Forum,’ he said late last year it implemented an exclusion of extreme small cap U.S. growth U.S. equities. In many case, these are stocks are in the bottom 25 per cent for book-to-market, earnings-to-price, and cash-flow-to-price ratios. As a result of this exclusion, the historic research shows an annualized return of 13.3 per cent, compared to portfolios with the excluded stocks which returned 11.91 per cent for the period from 1979 to 2009. He said exclusion strategies help keep portfolios focused on risk dimensions. For example, they also exclude recent IPOs which they feel do well the first day, but then start to decline.
Investors Shift To Mutual Funds
Institutional investors worldwide are increasingly dropping managed accounts in preference for mutual funds, says Strategic Insight’s ‘Spotlight on Switzerland. It found a growing trend of small and medium-sized institutions switching from managed accounts to mutual funds. This trend could be seen in Europe and worldwide, but was particularly marked in Switzerland, where they calculated institutional mutual funds had tripled in assets since 2005.
Cruikshanks Joins Eckler
August Cruikshanks, MBA CFA, is head of investment research at Eckler. With more than 15 years’ experience in Canada and the United States as both a consultant and plan sponsor, as head of investment research he will manage its Canadian investment research platform. He will integrate that platform with its worldwide partner – Abelica Global. Jill Taylor Smith, CFA, is a senior consultant. Before joining Eckler, she held senior roles with another global consulting firm and investment management firms.
Tuesday, June 21, 2011
Employers Have Obligation
Employers have an obligation to maintain a workplace free of violence and harassment, says Milé Komlen, director of human rights and equity services at McMaster University. In the session ‘Mental Health, Harassment, and Employer Liability’ at the Conference Board of Canada's 'Workplace Mental Health 2011' conference, he said employers who fail to do so may face a potential liability. Employees may claim they have been constructively dismissed on the grounds they "didn't sign on" to be bullied or harassed. As well, he said more groups of employees are making group complaints on the grounds they are victims of harassment. Employers also have a duty to investigate complaints as soon as they are aware of them, not just after formal complaints. In some cases, they may even be able to have just cause to dismiss the offending employee if it is a clear case of unacceptable behaviour.
Private Equity Interest At Unprecedented Levels
Institutional investor interest in private equity secondaries market has reached “unprecedented” levels, says research by Coller Capital. It shows the industry's secondaries market, which allows investors to sell out of the traditionally illiquid asset class, is rapidly expanding. More than a third of U.S. and Canadian investors are planning to sell private equity assets in the next two years.
Employers Need To Care For Employees
Employers cannot depend on the primary care system to look after the mental health of their employees, says Larry Myette, an occupational medicine consultant at Healthy Horizons Corporate Health Consulting Inc., they need to provide it to their employees themselves. He told the Conference Board of Canada's 'Workplace Mental Health 2011' session ‘Preventing Needless Work Disability from Common Mental Disorders: The Role of Employers in Health and Productivity Management’ that mental disorders are a leading cause of disability in working age employees. In fact, cancer and cardiac disease should not be considered as important by employers because mental diseases start at an earlier age and can reoccur many times during a person's career unless measures are taken to prevent relapses. As a leading cause of disability, it is not being addressed by plan design. He said there needs to be a change in approach from acute care to chronic disease management.
Institutions Turn To Infrastructure
Institutional investors' allocations to infrastructure will have grown by nearly 370 per cent over three years by 2012, says First State Investments. Its survey of institutional investors, including pension funds, predicts that infrastructure allocations over a three-year period from 2009 to 2012 will increase by 367 per cent. Pension funds have been boosting their allocations to infrastructure for several reasons. It can act as a hedge against inflation; it can reduce volatility and increase risk-adjusted returns; and it enables pension funds to match liabilities with assets. Regionally, Europe remains the most attractive market for developed infrastructure.
Gaudry Shares RBC’s Journey
Dr. Julie Gaudry, of RBC, will examine ‘Wellness ‒ a nice extra or a strategic imperative?’ at the ‘2011 CPBI Ontario Regional Conference.’ She will share RBC's journey through their process of ‘obtaining’ leadership support, of ‘motivating’ employees to make health-related lifestyle changes, and how they are using metrics to ‘measure’ their successes and identify future opportunities. It takes place October 19 to 21 in Ottawa, ON. For more information, visit http://www.cpbi-icra.ca/
Monday, June 20, 2011
Pension Plan Going To Arbitration
Air Canada and the Canadian Auto Workers (CAW) union have agreed to put the issue of whether new hires should have a Defined Benefit pension plan to binding arbitration. The airline and striking customer service workers reached a tentative contract agreement, settling on the compromise on the issue of pension benefits and who should pay for them. Under the tentative contract deal, existing employees’ DB plans will see only “very slight modifications” starting in 2013 and they will not suffer the large reductions that the airline wanted. The contentious issue of providing new hires with a Defined Contribution plan, rather than a DB pension as current employees and retirees receive, will be sent to binding arbitration at which time the union will present the case for continuing DB plans.
Disclosure Concerns Employees
While Canadian organizations have taken some steps to remove stigmas associated with mental health issues, employees remain concerned about disclosing a mental health issue to their employer, says a Conference Board study. ‘Building Mentally Healthy Workplaces: Perspectives of Canadian Workers and Front-Line Managers’ provides a national perspective on Canadians’ work environment and the degree to which it supports their mental well-being. The study identifies four areas for organizational action ‒ education and communication, workplace culture, leadership, and managerial skills and capacity. The survey revealed that mental health issues are prevalent in their workplaces. Forty-four (44) per cent of the employees surveyed reported they were either currently (12 per cent) or had previously (32 per cent) personally experienced a mental health issue. For this study, the definition of a mental health issue was very broad and included excessive stress, anxiety, depression, burnout, addictions and substance abuse, mania, bipolar disorder, and schizophrenia, among others. In addition to the effects of mental health on individuals, organizations are also feeling the financial costs. In 2009-2010, 78 per cent of short-term disability claims and 67 per cent of long-term disability claims in Canada were related to mental health issues.
Majority Use PBMs
A majority of U.S. employers are using third-party pharmacy benefit managers (PBMs) to process and pay prescription drug claims, says a survey by Buck Consultants, A Xerox Company, which indicates companies are turning to PBMs because they offer better drug prices. It indicates 57 per cent of employers are now using PBMs compared to 47 per cent in 2009. The ‘Prescription Drug Benefit Survey’ shows nearly all (96 per cent) respondents provide active employees with prescription drug coverage. Fifty per cent of respondents offer retirees prescription drug plans and 75 per cent of these employers intend to continue this benefit to Medicare-eligible retirees over the next three years. The top reasons given for providing this coverage are the positive impact on medical claims, business competitiveness, attracting and retaining key employees, and the belief that it's the right thing to do.
Funds Will Shift From Equities
Pension funds will continue to shift away from equities to bonds as a result of the latest changes to International Accounting Standards, says Mercer. It says changes to IAS19 will prompt companies to review their pension allocations and investors to review the effect of pension risks on companies. The rules would also encourage companies to change the way billions of dollars of pension fund money is invested.
Half Of Plans Converted
Just over half (51 per cent) of private sector Defined Benefit plan respondents have now converted their plans to Defined Contribution arrangements for current or future employees, up from 42 per cent in 2008, says a survey of Canadian plan sponsors by Towers Watson. And, the study suggests that this trend shows no sign of relenting. It also reveals that recent improvements in economic conditions have had virtually no impact on executives’ perception of a DB funding crisis. The percentage of respondents who agree that there is a pension funding crisis has remained at historic highs since the financial downturn of 2008. The survey found that more than half of respondents (56 per cent) believe that the funding crisis will persist for the long-term compared to 34 per cent who held this view in 2008 before the onset of the recession. Just under one-third (32 per cent) perceive funding challenges to be a cyclical phenomenon.
More Hedge Funds Launched
More new hedge funds launched in the first quarter of 2011 than any time since 2007, fuelled by a tailwind of industry assets breaching $2 trillion for the first time, says research from Hedge Fund Research. This year to March, 298 were launched, but liquidations also rose to their highest level in 12 months, with 181 funds closing down, a failure rate of nearly two per cent. In total, 684 funds liquidated in the last 12 months, but this still left a net increase of 295 funds over the last year, also the highest since 2007. The 7,285 funds in existence were, however, still below the 7,634 counted at the end of 2007, before the industry's decline to 6,845 funds by the end of 2008.
Friday, June 17, 2011
Members Prefer Their Benefits
Fifty-nine per cent of group health benefit plan members in Canada would rather keep their health benefit plan than receive $10,000, says the ‘sanofi-aventis Healthcare Survey.’ Even when the money is doubled to $20,000, 48 per cent would choose their benefits over the money. The survey reported a mixed message on health promotion or wellness programs. Sixty per cent of employers say they already offer such programs and 68 per cent plan to invest more money in this area within the next year. But on the other side, fewer plan members report that their employers promote or provide wellness programs. This year's result of 23 per cent is down from 29 per cent a year ago and 31 per cent two years ago. "This slide is very concerning. There is an undeniable need to better engage Canadians, both in their work, and in their own health. Many employers support this, but the survey suggests more effort is needed to ensure their workforce investments are relevant, effective, and visible for the employees who stand to benefit," says Chris Bonnett, a member of the survey's advisory board and president of H3 Consulting. The report is at www.sanofi-aventis.ca
CLHIA Applauds Psychological Safety Standard
Canada's life and health insurance industry is glad to see the Mental Health Commission of Canada and the federal government plan to develop a voluntary Canada-wide standard in support of psychological health and safety in the workplace. "The life and health insurance industry is committed to supporting the mental health of Canadian workers and we're glad to see this important step being taken towards supporting mental wellbeing and changing misperceptions," says Frank Swedlove, president of the Canadian Life and Health Insurance Association (CLHIA). The life and health insurance industry is the principal provider in Canada of individual and group benefit products and services and plays a significant role in wellness, disease prevention, and in supporting recovery. As a result, the industry adopted a set of principles that embrace standards and best practices that contribute to health and productivity in the workplace. These include working to improve knowledge and awareness of the impact of mental health in the workplace and encouraging the development and promotion of best practices and programs.
Thursday, June 16, 2011
Stock Based Compensation Creates Volatility
Stock based compensation for senior executives was supposed to align shareholder interests with those of the company’s management when they were first put in place in the mid-1970s. However, all they really do is cause volatility in stock prices and 50 years from now this period will be considered quaint because of the use of the practice, says Roger Martin, dean of the Rotman School of Management and a professor of strategic management. Speaking at the Canadian Coalition for Good Governance’s annual general meeting, he said if stock based compensation did work and did align these interests, the results should bear this out. However, since they first started being used, shareholder return is 15 per cent lower than in the previous era. As well, there have been two historic financial meltdowns. Again, in the previous era while there were downturns, they was nothing of the magnitude of 2001 and 2008. The problem is that the practice makes stock prices rise based on shareholder expectations, not company performance. And it means executives realize that they need to manage expectations to cash in on their options, not manage the company, he said.
Plans Need Significant Change ‒ The Big Picture
A brave new world has arrived and drug benefit plan sponsors need to make significant changes to existing plan designs, says Mike Sullivan, president of Cubic Health. He told the Connex Health ‘Benefits Breakfast Club’ session ‘Why Generic Drug Pricing Legislation Is Not Enough,’ part of the problem is that sponsors are still using first generation cost containment tools which had value back in 1997. Instead, sponsors should be turning to next generation cost containment tools. Benefits and Pensions Monitor was there and recorded Sullivan’s entire presentation. Watch it on ‘The Big Picture’ at http://www.bpmmagazine.com/bigpicturevideo
Unitholders Approve Sale
Unitholders of TimberWest Forest, the largest landowner in B.C., have approved the sale of the company to two pension funds. Unitholders voted 98 per cent in favour of selling the company to the British Columbia Investment Management Corp. and the Public Sector Pension Investment Board, a federal Crown corporation. The B.C. pension fund, which invests pension contributions on behalf of provincial public sector employees, already holds a 22 per cent stake in TimberWest. The two funds will both have a 50/50 stake in the company when the acquisition closes. TimberWest owns 327,000 hectares of land, mostly on Vancouver Island.
Financial Concepts Understood
While certain financial concepts are reasonably well understood by the majority of Ontarians, the application of knowledge seems to be where the real problem is, says a study by the Investor Education Fund. ‘Benchmarking Investor Knowledge’ reveals almost 90 per cent of survey participants could spot signs of fraud and 79 per cent knew the tax benefits of RRSPs. About two-thirds grasped basic financial and economic principles such as the relationship between risk and return and the interest implications of borrowing money. However, many were unable to solve practical problems that involve compound interest. As well, only three out of 10 Ontarians are aware of typical priorities and strategies for long-term saving and even fewer know how financial priorities change with age.
CCGG Making Progress
Despite a lack of regulatory reform over the last decade in the governance of Canadian public issuers, significant progress has been made in the adoption of governance best practices in Canada since the founding of the Canadian Coalition for Good Governance (CCGG) in 2003. That is the conclusion of its first ‘Shareholder Democracy Study.’ Released at its annual general meeting, it found that today, most index issuers have adopted a governance model of either an independent chair or a lead director, hold annual director-by-director elections, and disclose the results of director elections. However, while the boards of most of Canada’s largest issuers have agreed that shareholders should be able to elect or reject each director by adopting ‘Majority Voting,’ a surprising number of significant Canadian issuers have continued the shareholder unfriendly and archaic practice of plurality voting – more than 40 per cent of issuers representing close to 20 per cent of the index by market capitalization. Issuers who have accepted shareholder democracy have also been the leaders in adopting ‘Say on Pay’, with more than 55 per cent of the index by market capitalization holding or agreeing to hold ‘Say on Pay’ votes.
Management Can Reduce Costs
Comprehensive health management for high users of benefits plans could help employers reduce plan costs and increase engagement and productivity, says Paula Allen, of Morneau Shepell. Speaking at its ‘How to deal with higher healthcare costs and lessen their effects?’ session, she said it is similar to the management practices used for disability cases. High end users are the minority of plan members who account for the majority of cost. For example, seven per cent of plan members account for more than $25,000 of annual drug spend, about 45 per cent of the total. Comprehensive management practices would identify these members during their access to benefit plans, disability management programs, attendance management programs, and other referral points. From there, they could get medication management to maximize the value of their medication and counseling to ensure they take steps to avoid increasing their medication. However, she said these programs need to have reviews in place to account for exceptions in terms of prescriptions that may not be on a plan formulary or alternative treatments not covered by the plan.
Standard Life Allies With Qtrade
The Standard Life Assurance Company of Canada and the Qtrade Financial Group have formed a strategic alliance which will allow their customers to benefit from an enhanced product and service offering. A series of joint projects are expected to be launched over the next year. The two will first work on offering the Qtrade Investor online brokerage platform to Standard Life’s independent advisors outside Quebec. The Qtrade Financial Group provides brokerage and wealth management solutions to the retail public as well as the clients of more than 200 financial institutions across Canada including credit unions, regional banks, financial planning firms, trust companies, and portfolio managers.
Specific Analysis Required
The challenge faced by benefit plan sponsors is they have to make decisions today which will still be useful in five years, says Joy Sloane, of Morneau Shepell. She told its ‘How to deal with higher healthcare costs and lessen their effects?’ session that the drug benefit landscape is changing and they need to carry out very specific analysis to understand the impact. Changes cannot be made unless they understand the impact of these changes and the drivers of cost and future liability. She said not only are drug costs going up, but they are also seeing an increase of 13 per cent in the number of scripts being written each year for claimants between the ages of 45 and 64 as medication is being prescribed for more conditions. And while a number of big name drugs coming off patent could mitigate drug costs, sponsors need to be aware of biologics. By 2020, there could be 100 of these expensive new treatments on the market.
Assets Top $1 Trillion
CIBC Mellon has surpassed $1 trillion in assets under administration, demonstrating the company's position in the Canadian asset and investment servicing industry. CIBC Mellon is 50/50 jointly owned by the Canadian Imperial Bank of Commerce and The Bank of New York Mellon. It is a provider of financial services for institutions and corporations, providing asset servicing, multi-currency accounting, information delivery, unitholder recordkeeping, and securities lending services in Canada. CIBC Mellon is part of the BNY Mellon network, which has $25.5 trillion in assets under custody and administration and more than $1.2 trillion in assets under management.
Mensch At ADP
Laura Mensch is vice-president, insurance solutions, at ADP Canada. With more than 20 years of group benefits industry experience, she was previously a senior vice-president at Aon Hewitt.
Wednesday, June 15, 2011
Funds Surpass Trillion Mark
The value of Canadian employer pension funds surpassed the $1 trillion mark ($1.05 trillion) for the first time during the fourth quarter, a 5.1 per cent increase from the third quarter, says Statistics Canada. Employer pension funds have not only recovered from losses experienced during the 2008 financial crisis, they have also posted two consecutive years of double-digit gains. After falling 13.1 per cent in 2008, pension fund assets rose 10.5 per cent in 2009 and 14.4 per cent in 2010. The proportion of total pension fund assets held in bonds edged down to 35.5 per cent, while the proportion held in stocks increased to 33.8 per cent. Pension revenues increased 59.1 per cent in the fourth quarter to $35 billion, following a 9.1 per cent decline in the third quarter. More than six million Canadian workers are members of employer pension plans. Of this group, five million workers are members of trusteed plans. The remaining one million members with employer pensions are in plans managed principally by insurance company contracts.
Indalex Front Of Mind
The Indalex decision has made pension issues front of mind for insolvency lawyers dealing with companies going into CCAA protection to avoid bankruptcy, says Craig Hill, of Borden, Ladner Gervais. Speaking at its ‘Pension and Benefits Law Update,’ he said that the decision to include amounts owed to a pension plan in with debtor in possession charges may keep lenders from stepping forward to lend to insolvent companies. He said this is the first time in his 20 year career he has ever seen this happen and he believes it may prompt lenders to force companies right into bankruptcy. In fact, the decision creates uncertainty for significant groups of stakeholders in insolvency and restructuring proceedings. As well, it provides a road map for the processes that must be followed to ensure that any debtor in possession charge is given unassailable priority.
Need For Review Reinforced
The new CAPSA guideline reinforces the importance for fiduciaries/plan sponsors to regularly review the fiduciary agreements associated with their pension program, says a Proteus ‘Pension Update.’ It says this review should be incorporated into the overall governance structure of the program. While CAPSA is specific to pension plans, the process of governance and review of fiduciary agreements should be applied to all capital accumulation plans, foundations, and endowments. The Canadian Association of Pension Supervisory Authorities (CAPSA) ‘Guideline Number 5: Guideline on Fund Holder Arrangements’ outlines good governance practices related to fund holder arrangements of the pension plan and pension fund. It expands on CAPSA ‘Guideline Number 4: Pension Plan Governance Guidelines and Self Assessment Questionnaire’ by highlighting the governance principles that apply to pension fund holder arrangements. It identifies the types of pension fund holder arrangements permitted and discusses the roles and responsibilities of employers, plan administrators, and pension fund holders. It also provides information on what the regulator looks for when examining fund holder arrangements.
HOOPP Rates Remain The Same
HOOPP’s member and employer contribution rates will remain stable in 2013. The contribution rates have been the same since the start of 2004. “Stability is an important objective for HOOPP,” says John Crocker, its president and CEO. “At a time when other large pension plans have been increasing contribution rates for members and employers and reducing benefits, HOOPP’s fully funded status means that our clients will, by the end of 2013, enjoy an entire decade without any contribution rate increases.” ‘Fully funded’ means that HOOPP has enough assets in its $35.7 billion fund to pay for all benefits owed to all members.
Compliance Takes Organized Approach
An organized approach is needed to ensure compliance with the various changes in pension legislation taking place, says Sonia Mak, of Borden Ladner Gervais. She told its ‘Pension and Benefits Law Update’ that changes are taking in place in some jurisdictions and not in others and they are taking place at different times so it becomes a challenge for plan sponsors to track the changes. She suggests that sponsors create a checklist of relevant legislative changes and then to review their plans and documents to see if any changes are required.
Equity Exposure Reduced
Institutional investors have reduced their exposure to equities and commodities and boosted their allocations to cash and bonds, says the BofA Merrill Lynch ‘Survey of Fund Managers for June.’ In the face of falling world markets, investors have been significantly reducing their holdings in equities, the survey found, as the net overweight equities fell to 27 per cent from 41 per cent in May. A net 18 per cent of asset allocators are now overweight cash with an average cash balance of 4.2 per cent of their portfolio, up from 3.9 per cent in May. Bonds are also gaining more favour. Although a net 35 per cent of asset allocators are underweight bonds, this is a big improvement compared with 58 per cent in April and 44 per cent in May.
Supervisor Influences Engagement
An individual's supervisor and the amount of employee communication in an organization are the top two influencers of employee engagement, says a survey by the International Association of Business Communicators Research Foundation and Buck Consultants, A Xerox Company. It found an immediate supervisor can influence an employee's engagement level both positively and negatively. Forty-four per cent said their supervisor strongly increased employee engagement, while 41 per cent said supervisors strongly decreased employee engagement. Thirty-nine per cent indicated the amount of employee communication is a strong contributor to employee engagement and 47 per cent said it had a moderate influence. Other factors contributing to increased engagement include change in leadership (31 per cent) and rewards/recognition programs (18 per cent). Factors contributing to decreased employee engagement are poor morale (49 per cent), poor management/leadership (48 per cent), downsizing (38 per cent), and change in leadership (26 per cent).
Hedge Funds Meet Transparency Demands
Hedge fund managers have met the demands of institutional investors regarding enhanced transparency about their funds and operations, says a Preqin survey. It found 90 per cent of institutional investors surveyed said they are getting sufficient portfolio transparency across their hedge fund portfolios. About 96 per cent of investors surveyed said hedge fund transparency has improved in the past three years. It also found that since the financial crisis, investors are looking more closely at the underlying investments in the hedge funds in which they invest.
Birch Joins Williamson
Lee Ann Birch is senior consultant, group benefits, at the Williamson Group. Previously, she worked for several Canadian insurance companies and benefits consultancies. She is responsible for delivering service and consulting support to group benefit clients.
Tuesday, June 14, 2011
Maple Commences TMX Offer
Maple Group Acquisition Corporation, a corporation whose investors comprise 13 of Canada's leading financial institutions and pension funds, has commenced an offer to acquire 70 per cent of the outstanding common shares of TMX Group Inc. The offer is part of an integrated acquisition transaction. The first step is to acquire 70 per cent of the TMX Group shares, followed by a second step, a court-approved plan of arrangement that will provide shareholders (other than Maple) with 40 per cent of the Maple shares in exchange for their remaining TMX Group shares. Upon completion of the transaction, Maple expects to be a Canadian regulated public company with approximately 40 per cent of its outstanding shares held by former TMX Group shareholders. Pension fund and other investors will own approximately 38 per cent of Maple, while the bank-owned investment dealers will own approximately 22 per cent.
Commercial Real Estate Comes With Risk
Pension funds should pay more attention to risk when moving into the European commercial real estate market, as access to debt remains limited, says loan servicer Hatfield Philips International. It expects to see more interest from pension funds, which historically have not considered the market a stand-alone investment class, because many investors that were active in the commercial property market in Europe before the crisis decided to leave the sector. This has created space for institutional investors. However, it says pension funds should proceed with caution, as the market remains volatile and the level of refinancing needed high.
U.S. Lags On Climate Change
U.S. investors lag behind their counterparts in Europe, Australia, and New Zealand when it comes to climate change, says a joint report by the Institutional Investors Group on Climate Change (IIGCC), the North American Investor Network on Climate Risk (INCR), and the Australia/New Zealand Investor Group on Climate Change (IGCC). It shows the majority of investors view climate change as a material investment risk/opportunity. However, there is greater integration of climate change across the board from European investors because of stronger climate policy in the EU, specifically around carbon pricing and renewable energy policy. In Australia, the lack of a carbon-pricing system and a less certain regulatory environment is a concern, although there is an increasing focus from investors on policy advocacy and addressing the physical impacts of climate change. However, in the U.S., the lack of coherent climate policy means investors are focused on engaging with companies, particularly with regards to improving disclosure, rather than integrating climate change into valuations or actively encouraging investment managers to do so.
DC Tilted To Large Cap
U.S. Defined Contribution plan investment menus ‒ regardless of a plan's size ‒ remain dramatically tilted toward large-cap domestic equity index funds, says research by Standard & Poor's Financial Services LLC. Among the DC plans it surveyed, 84.7 per cent offered a large-cap domestic equity index fund. Second in popularity were core bonds, offered by only one-third of the plans. It also found that index funds play a bigger role in the investment line-ups for larger plans ‒ with assets of $200 million or more ‒ than smaller plans.
Hedge Fund Investors Locked In
Investors who locked into hedge funds in the financial crisis may not have redemptions satisfied fully until 2015, says market intermediary Tullett Prebon. The long wait is a sign the liquidity crunch that hit the alternatives industry almost three years has yet to run its course. By its estimates, about $60 billion remains locked.
Monday, June 13, 2011
U.S Investors Redefine Risk
Investors in the U.S. are redefining their risk objectives to focus on reducing total risk, improving diversification, and achieving desired return, says Ernesto Ramos, of BMO Global Asset Management. However, he told the audience at its seminar that these goals to lower risk strategies may not lower returns. He explained that there is a low volatility anomaly that has been documented in finance literature for more than 30 years. In theory, higher risk should demand higher return. Yet, in practice, it has not. Instead, high volatility stocks underperform for a number of reasons including structural effects within the market that reinforce the overpricing of high volatility. As well, institutional investors chasing higher risk are overbuying high end stocks. Still, these lower volatility strategies need to take advantage of market and benchmark inefficiencies to provide lower risk while maintaining upside.
Savings Not Always Assured
Private plans shouldn’t necessarily favour simple generic substitution to ensure savings, says Green Shield Canada’s ‘Drug Trends Study 2010.’ It says history has demonstrated that a generic may not always be the lowest-cost drug available. This has occurred in Canada when some brand manufacturers experimented with dropping prices below generic equivalents in order to maintain a share of the market. When this type of pricing anomaly happens, plans that automatically default to covering generics risk paying significantly more, sometimes for widely prescribed medications. Even innovator brand products that still hold patent can provide opportunities for savings within drug plans. The report says that generic prescriptions within plans it manages rose to 49 per cent from 41 per cent over the five years of data included in the study. This translated into a nine per cent increase in the generics’ share of all drug costs, which hit 28 per cent in 2009-2010.
Frame Your Euro
If you have a Euro, frame it because it is not going to be around much longer, says Bruce Campbell, of Pyrford International. Speaking at a BMO Asset Management seminar, he said the currency makes no sense. In the past, countries could devalue their currencies to get out of default situations since interest rates reflected sovereign risk. Between 1978 and 1999 when the Euro arrived, countries such as Spain, Ireland, Greece, and even France all used currency devaluation to get out of default positions. When the Euro arrived, and all European nations using it had the same short-term interbank rate, it allowed some governments to go on a spending spree. He expects sovereign defaults (disguised as restructuring or reprofiling) will occur within the Euro-zone and European banks should be avoided because they will be hammered.
Victory Claimed On Both Sides
The fact that both plan sponsors and plaintiffs’ counsel have called the decision in CIGNA CORP. v. Amara a victory suggests that while CIGNA may have won the immediate battle, careless fiduciaries may have lost the war, says an Osler ‘Update.’ Written by Carol Buckmann and Carol Rosen, it says the U.S. Supreme Court does not often issue decisions interpreting the Employee Retirement Income Security Act (ERISA), so when the justices speak, the issues are significant. And while the full implications will not be clear until it has been interpreted in subsequent decisions, a new menu of remedies for misrepresentations to participants appears to be available without having to show in all cases that participants relied on those communications. The case was a class action challenge by plan participants in a cash balance conversion. The plaintiffs claimed that they had been told in plan communications that they would continue to earn benefits and sued for additional benefits they claimed had been promised. While participants convinced both a district court and the Court of Appeals for the Second Circuit that CIGNA should be responsible for paying the greater benefits promised to participants, the Supreme Court overturned the lower court decision, but it remanded the case. In doing so, laid out a blueprint for how the district court could nonetheless award the benefits to which participants thought they were entitled under the equitable relief provisions of ERISA.
Frontier Markets The Future
China and India are still the major emerging markets with growth opportunities, says Robert Lloyd George, of Lloyd George Management. However, he told a BMO Asset Management seminar that frontier markets could be the “next big thing” or new asset class to 2020 and the next decade could be the “decade of Africa.” They are where the BRICs were 15 years with neglected, under-researched markets with low PEs and good dividend yields, he said. Their market capitalization is less than 0.5 per cent of the world total, however, they have more than four per cent of the global GDP. And the political risk can be reduced by broad diversification, he said.
Friday, June 10, 2011
Expanded CPP Exposes Risks
Expanding the Canada Pension Plan (CPP) is a risky route to addressing Canadian concerns about low incomes in retirement, says a report by the C.D. Howe Institute. In ‘Don’t Double Down on the CPP: Expansion Advocates Understate the Plan’s Risks,’ author William B.P. Robson says advocates of an expanded CPP as a solution to retirement income worries too often promote it as a plan with guaranteed benefits that are fully funded. “The CPP is a gamble, not a guarantee: expanding the plan would raise the stakes on a bet most Canadians do not know they have made,” says Robson, who is president and CEO of the institute. The CPP looks like a Defined Benefit plan, but it is not, says Robson. Its retirement benefits are targets contingent on its financial condition. Moreover, past and upcoming revisions – including lower pensions for those taking them up before age 65 in both the CPP and its sister Quebec Pension Plan – show that governments can change the targets. Adverse economics and demographics, combined with disappointing investment returns, are now forcing the Quebec Pension Plan to trim benefits and raise contributions, he points out. Expanding the CPP would expose other Canadians to a larger risk of similar disappointments.
Passive Cost Management Blamed
Passive drug plan cost management is the single reason why plans have not been able to achieve goals of cost containment, says Mike Sullivan, president of Cubic Health. He told the Connex Health ‘Benefits Breakfast Club’ session ‘Why Generic Drug Pricing Legislation Is Not Enough,’ part of the problem is that sponsors are still using first generation cost containment tools which had value back in 1997. For example, he said frozen formularies are coming back, a tool that was popular in the mid-1990s. However, their use suggests there are no valuable drugs coming down the pipe and, in any event, they haven’t done anything meaningful to contain costs. Instead, sponsors should be turning to next generation cost containment tools by gaining access to the plan data to drive effective drug utilization and specialty drug management as well as optimizing chronic therapy management.
Lump Sums Taxable After 2012
Lump sum amounts payable to employees or retirees in lieu of health and dental coverage will be taxable, unless they are paid before 2012, or are paid after that date in connection with an employer insolvency that arose before 2012. A Towers Watson ‘Client Advisory’ says the Canada Revenue Agency provided clarification on statements made in the federal budgets of June 6 and March 22. This clarification provides a limited time window for employers who may be considering or implementing settlements of post-retirement health and dental benefits to offer such payments on a tax free basis. The CRA historically took the position that lump sum amounts received by retirees or employees upon cancellation of their private health services plans could be considered advance reimbursements of medical expenses and were, therefore, not taxable when received. Upon re-examination of this position, the CRA has now concluded that such amounts are taxable when received. However, to provide for adequate public notice, the CRA states that this new position will not apply to payments of this nature made prior to 2012. In other words, lump sum settlements of post-retirement health and dental benefits will generally be treated as non-taxable to the recipients, as long as the payments are made on or before December 31, 2011.
Dark Pools Source Of Liquidity
Avoiding dark pools is no solution for investors, says Ian Williams, managing director, trading and sales, ITG Canada Corp. In the session ‘Dark vs Gray vs Lit: The Impact of Dark Pools on Costs & Performance and their Evolution in the Public Markets’ at the ‘FPL Canadian Trading Conference 2011,’ he said dark pools are a source of liquidity and it is necessary to find out how clients can act to access this liquidity. As well, they are becoming more prevalent. Right now, there are five visible pools and two dark pools in Canada. However, he predicts the arrival of at least two more dark pools and he sees Canada following the U.S. trend where there are more than 40 dark pools. Dark pools appeal to investors because it means they can trade without having an impact on markets.
MLA Pension Review Seeks Input
The Nova Scotia MLA Pension Review Panel is seeking public input and invites written submissions from interested persons or groups. A three-person panel composed of retired Nova Scotia Supreme Court Justice David Gruchy; John Morash, former chair of the Nova Scotia Utility and Review Board; and Ronald Smith, former chief financial officer of MTT (Aliant) and Emera; was appointed to examine all aspects of MLA pensions and retirement benefits. Submissions may be sent by September 2 to MLAPensionReview@gov.ns.ca or MLA Pensions Review c/o The Clerk's Office 1st Floor, Province House, Box 1617, Halifax, NS, B3J 2Y3.
Linedata Opens Toronto Office
Linedata (NYSE Euronext: LIN), a global investment management and credit solutions provider, has opened an office in Toronto, ON. Located in the heart of the financial district in the TD Canada Trust Tower, this office establishes Linedata’s growing commitment to hands-on support for the Canadian market. “Linedata continues to expand its North American presence with 180 employees supporting more than 250 clients in the North American region. In particular, we’ve seen rapid growth in the Canadian market as asset managers look to improve trading and portfolio management procedures to support their own business expansion,” says Annie Morris, managing director of Linedata North America.
Wave Gets OMERS Funding
Wave Accounting Inc., the creators of free online accounting software for small businesses, has closed its seed round of financing, led by OMERS through INKEF Capital, the venture capital investment alliance of pension funds OMERS and ABP. Kirk Simpson, president and CEO of Wave, says "The arrival of a lifecycle investor like OMERS points to a new way of doing business. Canadian tech startups can now create value on a global scale, without going outside Canada for funding."
Hackers Hit Citibank
Hackers have stolen information from thousands of Citibank customers in the U.S. The violation, which took place last month, exposed customer names, account numbers, and other contact information. However, key data such as date of birth and security codes map not have been compromised, says the bank. About 200,000 customers were affected, although the bank had previously said it could affect up to one per cent of its 21 million users.
Blackstock Moves To Russell
Dexton Blackstock is director, head of institutional business development at Russell Investments Canada. He will be responsible for developing and marketing its products, services, and customized solutions to institutional clients and prospects. He was most recently with State Street Global Markets, where he was responsible for delivering research and solutions-based products and services to the institutional investor community in Canada.
Thursday, June 9, 2011
Industry Failed Pension Plans
The industry, not traditional asset allocation, has failed pension plans, says Bill Solomon, a consulting actuary. In a session on ‘Asset Allocation and How It Is Evolving’ at IMN's ‘10th Annual Canada Cup of Investment Management,’ he said government, regulators, and consultants who promoted the concept of taking contribution holidays to satisfy limits on pension fund surplus are to blame. In the 1990s when funds were all in surplus position, they encouraged pension plan sponsors to take contribution holidays. However, this meant plans had nothing set aside for the economic downturns in the past decade. Robin Pond, senior investment and Defined Contribution consultant at Buck Global Investment Advisors, said there has been a lack of recognition that pension funds have lifecyles. The industry has always seen them as long-term vehicles when, in fact, as they mature they face negative cash flows and their tolerance to risk changes. He said a more flexible dynamic asset allocation that changes over time is needed. Solomon also says he believes many of the asset allocation decisions being made today are being influenced more by accounting standards than the needs of the plans. This is prompting the use of pension investment strategies as a means to reduce volatility on the corporate balance sheet. He said the sad truth is that the best de-risking strategy is to wind up Defined Benefit pension plans and move to Defined Contribution and group RRSPs.
HSBC Closing Climate Change Fund
HSBC Global Asset Management (Canada) Limited will close and wind up its Global Climate Change Fund this August. Effective immediately, new investments into the fund will no longer be accepted. The decision to close the fund is based on the small fund size and relatively small number of unitholders.
Day-to-day Basically Unaffected
In most situations, the decision by Ontario and Quebec to adopt CAPSA’s new Multi-Jurisdictional Pension Plans Agreement should not significantly affect the day-to-day operations of multi-jurisdictional pension plans, says a Buck Consultants’ ‘Update.’ However, plan sponsors can expect that the regulators in jurisdictions that have adopted the new agreement to issue new policy guidelines and guidance material. As well, service providers and plan sponsors will need to take care to understand the implications of the new agreement on funding for multi-jurisdictional plans. In particular, minimum funding requirements under solvency relief exemptions (temporary or otherwise) provided by several jurisdictions will need to be analyzed for multi-jurisdictional pension plans.
Leverage Adds Volatility
While real estate is typically thought of as a low volatility asset class, that is a bit misleading, says Robert Bevan, senior investment researcher at Towers Watson. Speaking in the ‘Creating a Real Estate Portfolio’ session at IMN's ‘10th Annual Canada Cup of Investment Management,’ he said the use of leverage adds volatility to real estate so investors need to know what kind of asset to invest in. Typically, a core portfolio will have up to 30 per cent leverage, a value added portfolio has 30 to 50 per cent, and an opportunistic approach has more than 50 per cent. With so much focus on reducing balance sheet volatility, sponsors need to consider this in selecting the type of real estate they invest in.
Funded Ratio Drops In U.S.
The funding ratio of the typical U.S. corporate Defined Benefit pension plan fell 2.3 percentage points to 86.9 per cent in May, driven by falling interest rates and negative investment returns, says a report from BNY Mellon Asset Management. The decline is the first after eight months of gains. It was driven by the impact of lower Treasury yields and investor concerns regarding sovereign debt of some European nations. Returns also declined with U.S. equity markets losing 1.1 per cent and developed equity markets losing three per cent in May.
Report Examines Inflation Strategies
A report by leading pension managers, trustees, corporate sponsors, and asset managers in the UK, Europe, and the U.S. examines how institutional investors should position asset allocation strategies for a high inflation scenario plus the investment strategy that will best protect against growing inflationary pressures. The Clear Path Analysis report, ‘Inflation Hedging for Institutional Investors,’ highlights what a heightened inflation environment means and what can be done about it. It says the emerging markets and commodities boom, along with the effects of the economic stimulus packages, mean pension schemes and the wider institutional investment sector have found themselves struggling to make sense of inflation expectations.
Mohacsi Heads CLHIA
George Mohacsi is chairman of the Canadian Life and Health Insurance Association Inc. The president and CEO of The Independent Order of Foresters is currently the chair of the CLHIA board’s standing committee on government relations and previously served as the chair of the standing committee on standards and marketplace relations. He has served as head of Foresters for the past six years.
Wednesday, June 8, 2011
Maple Group May Grow
The group of banks and pension funds trying to acquire the TMX Group Inc. may be expanding its membership. The Maple Group is reportedly in talks with Manulife Financial, Desjardins Financial, GMP, and Dundee Capital. The thinking is that broadening the group would be good for the consortium because the additional members would signal to regulators that Maple’s bid has broader support among the financial community.
Fragile Parts Exposed
One of the things that bothers Kenneth R. French, director, head of investment policy and director of investment strategy at Dimensional Fund Advisors and a professor of finance at Dartmouth College, is that no-one wants to fix the fragile parts of the financial system exposed by the financial crisis of 2008. In a keynote presentation, ‘Value and Growth Around the World’ at the IMN's ‘10th Annual Canada Cup of Investment Management,’ he said no-one knew how fragile the system was at the time and that was one of the reasons people started to run. In fact, he said, “you were crazy if you didn’t run.” As an example, he said with money markets it has been suggested that financial institutions which back them should have some cash behind them. At first, they fought this. Then when it became clear it would be regulated, they embraced the idea, but tried to gut it by reducing the amount of cash required to about a 10th of what was recommended on the grounds no-one lost money during the crisis. While he acknowledged this was true, he qualified it by adding “this time.”
Budget Includes Previous Initiatives
The government of Canada's ‘Budget 2011, the Next Phase of Canada's Economic Action Plan ‒ A Low-Tax Plan for Jobs and Growth’ includes all of the initiatives previously introduced by the government in March prior to the federal election, says a Hicks Morley ‘FTR Now.’ Initiatives of interest for employers, include the elimination of the mandatory retirement age for federally regulated employers. As well, it sets out new rules for individual pension plans and RRSPs which, in accordance with the June 6, 2011 budget announcement, came into effect as of March 22, 2011. It also calls for a review of employee profit sharing plans and confirms that the federal and provincial finance ministers are working to implement the defined contribution pooled registered pension plan initiative first announced in December 2010. As well, it makes a commitment to financial literacy initiatives to help Canadians make more informed retirement savings choices.
Target Plans May Make Sense
Target benefit plans may be “the something” that makes sense between Defined Benefit and Defined Contribution plans, says James E. Keohane, senior vice-president, investment management, and chief investment officer at the Healthcare of Ontario Pension Plan. As part of the ‘Pension Roundtable: Outlining the Future’ at IMN's ‘10th Annual Canada Cup of Investment Management,’ he said DB plans may move towards Target Benefit plans, but it will be a slow, evolutionary process. While he acknowledges the trend to DC plans, he has some serious concerns with them. It merely masks the underfunding problem by shifting it from the pension plan to the plan member who may not appreciate how much they need in retirement. He likens it to expecting people to perform their own surgery. They are being asked to plan for retirement when they are not qualified to do so.
Living Longer Serious Issue
Living longer than expected is one of the most serious issues facing U.S. workers today, says the Institutional Retirement Income Council (IRIC). It also says longevity and its impact on retirement savings are creating workplace challenges for employers as well as policy issues for the government as many workers will delay retirement in order to accumulate sufficient retirement savings. It points out that retirees, on one hand, can use their 401(k) account balance to purchase an annuity. While this provides a retired worker with certainty and addresses the longevity factor, it also leaves the retiree facing a potentially diminished lifestyle in the event of inflation. On the other hand, retirees can hold their retirement assets in an IRA, invest the funds appropriately, and use a withdrawal rate intended to sustain money for lifetime. This option also presents challenges for retirees, if, for example, they live longer, run out of funds, and end up with a less than desired living standard toward the end of their life.
Interest Rate Spike Would Shock
A spike in interest rates would be a shock for pension funds, says Malcolm Hamilton, a partner at Mercer. However, he said during the ‘Industry Leader Roundtable: The Future, The Concerns, The Solutions’ at the IMN’s ‘10th Annual Canada Cup of Investment Management’ he doesn’t expect an increase in interest rates. In the U.S., for example, it would hurt the government, banks, and homeowners so he doesn’t see why interest rates would be pushed up. He also said the inflation of today is being driven by commodity price increases and there is little indication that it is moving into wages. The inflation of the 1970s was due to wage settlements and, as a result of that period, the cost of providing $1 of pension jumped from 40 cents then to 80 cents today. Yet, plan sponsors don’t seem to recognize this. Instead, they are hoping that the return on riskier assets can compensate for the low return of safe assets. Plus, right now they cannot afford to de-risk. One solution is to share the risk, only a few private sector plans are looking for ways to share the risk with their members and this is a slow process, he said.
Leakage Less Of A Concern
Withdrawals and other leakage issues should be less of a concern to retirement plan sponsors than other factors, says Jean Young, a senior research analyst in Vanguard Center for Retirement Research. In a commentary, she says that participation rates pose a much bigger problem overall. She acknowledges that plan sponsors should be concerned any time participants take loans and withdrawals because they're spending their retirement savings. However, even if participants who take distributions haven't accumulated enough savings to warrant doing so, the fact is that they have more savings than those not in the plan. Increasing the plan’s participation rate should be plan sponsors' most important initiative, especially for those who've yet to switch from voluntary enrolment to automatic enrolment.
State Street Offers Springboard App
State Street Corporation has a mobile application for the iPad ‒ Springboard. Springboard allows clients to view essential portfolio information that is specifically designed for mobile users and leverages the content and information from my.statestreet.com, State Street’s online information delivery platform. Targeted at executive-level portfolio and fund managers, the initial release of the app includes the ability for users to view their entire investment portfolio at a glance, including risk-exposure analysis, Net Asset Value (NAV) summaries, and fund flows. Clients will also have access to thought leadership, including the ‘Vision’ series of publications.
DB Acquires Money Market Assets
DB Advisors has acquired more than $5 billion in money market assets from Standard Life Investments. The assets will be merged into its existing funds and brings DB Advisors’ total cash assets under management to €85.3 billion. Most of the assets are run for corporate and municipal treasury clients. SLI decided to exit the most-liquid and shortest-term end of the cash management market because of anticipated changes to regulations in Europe and the U.S.
Carrescia Joins INKEF
Peter Carrescia is managing director of INKEF Capital, the venture capital investment alliance between OMERS and ABP in the Netherlands. In this role, he will be responsible for helping INKEF identify and partner with high-growth companies it can finance from the early stages right through to sale or initial public offering. He was previously general partner at a Canadian venture capital firm.
Second Workshop June 22
AIMA Canada’s ‘Emerging Manager Workshop #2: Capital Introduction’ will feature Claude Robillard, of Capital Introduction; Daniel Solomon, of BMO Investment Funds Research; and Mark Tredgett, of Vantage Asset Management Inc. It takes place June 22 in Toronto, ON. For more information, visit http://aima-canada.org/
Conference Looks At Global Fixed Income
The ‘Global Fixed Income Management Conference’ will investigate the latest fixed income strategies and products from a truly global perspective. Issues examined include asset allocation in a low-interest-rate world, emerging market risk and opportunity, and structured credit developments and disasters. The CFA Institute and the Toronto CFA Society event takes place June 16 and 17 in Toronto, ON. For more information, visit http://www.torontocfa.ca
Tuesday, June 7, 2011
CFIB Disappointed Growing Gap Unaddressed
The Canadian Federation of Independent Business (CFIB) is disappointed that the federal budget does not take further action to reduce the growing gap between public sector and private sector compensation, benefits, and pensions, says Catherine Swift, its president. "This was a missed opportunity to address the massive unfunded pension liability and deal with the ever rising cost of Canada's civil service. This is really about fairness to taxpayers that will ultimately get stuck with the bill if not addressed soon.” It did welcome ongoing work to introduce Pooled Registered Pension Plans (PRPPs). However, it is concerned with a reference to make "modest enhancements" to the Canada Pension Plan (CPP). “Another tax increase is not the answer,” she said. Dave Coles, president of the Communications, Energy and Paperworkers Union of Canada, said his group is disappointed that the budget offered “nothing to address the looming national pension crisis."
Conventional Wisdom Needs To Adapt
The five key risks Canadians face in saving for retirement are just as robust and valid in the wake of the crisis as they were before the crisis, says a report from Fidelity Investments Canada ULC. ‘After the global financial crisis ‒ the 5 key risks to retirement income’ says Canadians face longevity, inflation, asset allocation, withdrawal rate, and healthcare risk. It says Canadians are living longer and healthier lives. There is a 50 per cent chance that at least one member of a couple both 65 will live to age 90 and a one in four chance that at least one member will live to 94. As well, while high inflation, such as that experienced in the 1970s, is unlikely, even a modest two per cent inflation over the span of a 25-year retirement ‒ approximately the same rate as the past 20 years ‒ can erode a retiree's purchasing power by 40 per cent. It also notes Canadians need diversified portfolios that include stocks, bonds, and cash and conservative withdrawal streams so they do not outlive their retirement savings. Finally, 39 per cent of retirees surveyed believe healthcare costs beyond the government programs could deplete their savings and lower their standard of living. Canadians need to understand what is and isn't covered by government healthcare plans, what their potential needs may be, and plan accordingly for out-of-pocket age-related expenses.
DC Doesn’t Manage Retirement
Defined Contribution pension plans are not an effective way for employers to manage retirement, says Ian Markham, of Towers Watson. He told the 'Today's Risks Faced by Pension Plans' at the Toronto CFA Society's '2011 Annual Pension Conference' that U.S. studies show when the economy is going well and DC account balances are up is when employees start to retire. However, this is when employers want to retain these employees. He said the trend to move from Defined Benefit plans to DC as seen in the U. S. and UK has been slower to take hold in Canada for a couple of reasons. One is Canadian pension funds were not hurt as badly during the 2001 financial crisis, reducing the urgency to switch. As well, Canadian plans may be waiting to see what comes out of the pension reform activity taking place across the country. As these come into effect over the next year, he suspects that sponsors will start to move to DC because a recent Towers Watson shows changes in the legislative environment and plan design will have little chance of forestalling the move to DC.
Vanguard Establishes Canadian Business
Vanguard has established a Canadian business ‒ Vanguard Investments Canada Inc. Its initial focus in Canada will be to offer investment products to Canadian investors through investment advisors. “Extending our reach to the Canadian market in a significant way is an important step in the development of our global business,” says William McNabb, its chairman and CEO. “Although Canada has a very well-developed asset management market, we believe our unique value proposition of low-costs, client alignment, and enduring investment solutions will resonate with Canadian investors.” Vanguard is a leading provider of high-value, low-cost investment products and services in the United States and globally. The Canadian operation is led by Atul Tiwari, formerly an executive with BMO Financial Group and past-president/CEO of Harris Insight Funds.
Accumulation Plan Eliminates Inequity
A lifetime accumulation limit would eliminate the inequity created by income tax rules between Defined Benefit pension plans and Capital Accumulation Plans, says James Pierlot, of Pierlot Pension Law. Speaking the Toronto CFA Society's '2011 Pension Conference' session 'Better Pensions for More Canadians,' he said the tax rules are inequitable as the saving room is much lower for CAPs and Registered Retirement Savings Plans (RRSPs) than for DB plans. As well, pension plan membership is available only through an employer, meaning the self-employed and employees of companies with no plan are penalized. With a lifetime accumulation plan, retirement accumulations from all sources would be limited to a total of, for example, $2 million which is close to the maximum accumulation now permitted in DB plans. They would allow contributions from any taxable income sources, which would facilitate innovative plan design not currently allowed under tax rules.
CPPIB Gets Stake In Gassled
A consortium led by the Canada Pension Plan Investment Board (CPPIB) has acquired a 24.1 per cent stake in the Gassled Joint Venture from Statoil ASA. The buyer is Solveig Gas Norway AS, a holding company that is approximately 45 per cent owned by CPPIB; 30 per cent by Allianz Capital Partners, a subsidiary of Allianz SE; and 25 per cent by Infinity Investments SA, a wholly owned subsidiary of the Abu Dhabi Investment Authority. Established in 2003, Gassled is an unincorporated joint venture which owns the majority of the gas transport infrastructure on the Norwegian Continental Shelf. It is expected to benefit from the growth in European gas demand and Norway’s long-term position as a key supplier of gas to Europe.
Large Funds Better Option
Large funds may provide a better option for pension fund management, says Keith Ambachtsheer, director of the Rotman International Centre for Pension Management at the Rotman School of Management, University of Toronto. He told the ‘Building a Better Pension Committee’session at the Toronto CFA Society’s ‘2011 Annual Pension Conference’ there is research that shows, for example, large funds investing through private markets are “shooting the lights out” when it comes to return. However, they can hire the expertise they need in house at a fraction of what it would cost a smaller plan to outsource for these investments. The “uncomfortable truth” is, he said, in commercial financial services a lot of money is being spent on shelf space and market share. However, those saving for retirement would be better off if this wasn’t the case. He asked if Canada would be better served with just 300 pension fund organizations looking after pension funds. He noted that the Netherlands went from 1,500 to 500 plans based on the premise that larger organizations can do a better job. Later, he was presented with the CFA Institute’s ‘Award for Professional Excellence.’ The award is presented periodically to a member of the investment profession whose exemplary achievement, excellence of practice, and true leadership have inspired and reflected honour upon the investment profession to the highest degree. Previous recipients include David Swensen, Martin Leibowitz, Jack Bogle, Charles D. Ellis, Warren Buffett, and Sir John Marks Templeton.
Mercer Makes Appointments
Ted Singeris is leader of the investment consulting business for the Canada and Latin America region and joins the global leadership team at Mercer. He succeeds Yvan Breton who is now leader of its Canada and Latin America investment management business and also joins the global leadership group. Singeris has held numerous leadership roles during his 24-year career with the company including RRF market leader for Western Canada and for the Midwestern United States. Breton led the successful introduction and growth of several of its investment consulting solutions.
Monday, June 6, 2011
IASB Nearing Final Draft
The International Accounting Standards Board has published a ‘near final’ draft of its revised pension accounting standard IAS19. The draft confirms changes that could see billions wiped off company profits as it would remove two key features of existing pensions accounting standard ‒ the use of expected return on assets and corridor accounting options. The new standard also overhauls the rules on what must be disclosed in company accounts, with the intention of giving investors more information about the risks that companies run in their pension schemes. Final publication of the new standard is expected later this month.
Investors Need To Play Safe End
Investors need to play the safe end of the credit space by shunning duration risk as rising inflation hits yields, says PIMCO’s Bill Gross. He says treasuries are failing to compensate investors for the risks they are taking, given the inflation outlook. As a result, investors should look to "cheap" bonds in other segments of the market and focus on ‘safe spread,' which means buying more floating and fewer fixed rate notes. They should also buy into additional credit components such as investment grade, high yield, non-agency mortgage, or emerging market related debt, and shade their portfolios in the direction of non-dollar emerging market currencies.
Friday, June 3, 2011
Case For Credit Bullish
The case for credit is bullish, says Maryam Muessel, head of credit at BNP Paribas Investment Partners. Speaking at its ‘Be prepared! …global credit strategies for dealing with rising rates’ seminar, she said there are a number of reasons for this including the fact she believes the global recovery is sustainable because failure is not an option. Governments will do everything possible to sustain the recovery. As long as gas prices remain in check, oil prices do not exceed $150, and China manages a soft landing, “we will remain on a trajectory of growth. She said the long-term trajectory of interest rates is up due to inflationary pressure. While the curve remains flat, they expect it to steepen. Against this, one credit strategy is a safe carry that is not reliant on price appreciation for return and is combined with systemic tail projection strategies to safeguard portfolios from sudden systemic pullbacks. She said spreads are now fair compared to default expectations as corporate balances sheets are strong and corporate borrowers are well-positioned to meet their debt payments for the next several years even in the absence of growth.
Buck Examines Employee Apathy
Overcoming employee apathy over retirement savings is a problem facing plan sponsors around the world. However, with the advent of auto enrolment programs, concern over low occupational pension coverage, funding and solvency issues plaguing traditional plans, and a generally inadequate level of financial literacy among employees everywhere, HR and pension professionals are gearing up to deal with the challenge of making pensions more valuable to employees, says a Buck Consultants’ white paper. Non-engagement can mean trillions of dollars are being invested in unappreciated pension plans. To find out more about the issue, Buck formed ‘Financial Frontiers’ – a think tank based in the United Kingdom comprising HR and pension professionals, consultants, and academics. It found the key reasons behind this behaviour include a fatalistic belief in the possibility of dying tomorrow; an assumption that they can work until they die; and a paternalistic faith that someone will look after them. The best strategy to overcome this apathy is to provide the best quality information, offer appropriate benefit choices, and connect employees with one another.
Health Management Services Launched
Manulife Financial has launched Health Management Services, extending its comprehensive approach to serving all aspects of Canadian employers' group benefit needs. It gives employers a new way of dealing with the challenge of managing their overall benefit costs by taking the traditional approach of promoting employee health and wellness two steps further. It introduces the use of intervention techniques that have been proven successful at engaging employees in taking charge of their health and it fully integrates this approach with all aspects of an employer's benefit plan.
Zee Heads Cash Management
Stephanie Zee is head of cash management at Citi's Canadian Global Transaction Services (GTS) business. In this role, she will be responsible for the continued expansion of its global cash management business in Canada. She was previously with Intact Financial Corporation and Scotiabank.
Prevention Measures Examined
‘Preventing Workplace Meltdown’ will be examined at the ‘15th Annual Health Work & Wellness Conference 2011: A Business Imperative.’ Mary Ann Baynton, program director, Great-West Life Centre for Mental Health in the Workplace, and Dr. Martin Shain, founder and principal, Neighbour at Work Centre, will describe what not to do by sharing actual legal cases that resulted in employers being held legally liable for failing to provide a psychologically safe work environment. They will offer alternative approaches and strategies that could result in fewer workplace meltdowns. It takes place October 4 to 6 in Toronto, ON. For more information, visit http://healthworkandwellness.com/
Thursday, June 2, 2011
Ability To Borrow Impacted
The Ontario Court of Appeal’s decision in Indalex may affect the ability of entities with Defined Benefit pension plans to borrow money. During a panel discussion by Linc A. Rogers, Jeffrey P. Sommers, and Deron P. Waldock, of Blake, Cassels & Graydon LLP at its ’Recent Developments in Pension and Employee Benefits Law’ seminar, they said that lenders are, at the very least, going to be more sensitive to pension issues and there could be greater pension-related restrictions in credit agreements. As well, it may prompt companies in financial difficulty with DB plans to bypass efforts to save the company under the Companies’Creditors Arrangement Act and go straight to bankruptcy where case law provides that provincial deemed trusts are not enforceable under the Bankruptcy and Insolvency Act. While the decision may not be binding outside of Ontario, it may be persuasive in Alberta, New Brunswick, and Nova Scotia which have similar deemed trust language. Leave has been sought to appeal the decision.
Manager Changes Take Longer
Institutional investors are taking far longer to change investment managers or asset allocations than they did before the 2008 financial crisis, says Mellon Transition Management. Since the financial crisis began in 2008, it has seen institutions take as long as a full year to complete the transitioning of their assets away from one investment manager to another after beginning their initial consultations. This compares with a typical period of approximately two to four weeks before the crisis began. It attributes the longer time periods to heightened compliance scrutiny across the institutional investment landscape as plan sponsors and investment managers deal with regulatory changes and governance challenges.
Questions Abound On PRPPs
While the federal government has released a framework for Pooled Registered Pension Plans (PRPPs), legislation has not yet been released. However, says Elizabeth H. Boyd, of Blake, Cassels & Graydon LLP, what we do know is that PRPPs are to be flexible capital accumulation plans established and administered by financial institutions, although there is some question about whether the list of permitted administrators will be expanded. An employer may choose to offer any particular PRPP to its employees and may choose whether employees or the employer is required to make contributions to that PRPP. It appears that employer contributions to PRPPs will not be mandatory and that employers offering PRPPs will likely be able to select the default contribution rate, if any, for both employers and employees. Whether a cap on fees will be legislated in any way remains to be seen. She was speaking on ‘Recent Case Developments and Regulatory Round-up’ at its ’Recent Developments in Pension and Employee Benefits Law’ seminar.
Climate Change Needs Pension Plan Help
The World Bank investment arm, the International Finance Corporation, hopes to entice pension funds to inject capital into fighting climate change in the next few months. It says pension and sovereign wealth funds control an estimated $28 trillion, but less than one per cent currently goes into climate-related activity. The United Nations wants to steer at least $100 billion a year of investment into combating climate change by 2020. Pension funds are currently more reluctant than other investors to put money into clean technology and climate change due to the risks of a sometimes changing regulatory environment.
DC Needs Clear Communications
It will be very important to have clear and comprehensive communications to employees and investment options must be carefully chosen, monitored, and amended as required when it comes to Defined Contribution pension plans, says Kathryn Bush, of Blake, Cassels & Graydon LLP. She told the ‘Defined Contribution Pension Plans: Canadian and U.S. Litigation’ session at its ’Recent Developments in Pension and Employee Benefits Law’ seminar that as administrators, part of the effort to avoid pension litigation has been complying with the CAP guidelines. What can be seen in the U.S. and Canada when it comes to legal developments is that fees charged to DC investments will be heavily scrutinized; in plan conversions, it will be important to ensure that employees understand what conversion choices mean to them and have enough information to make a prudent decision; the use of employer stock as an investment option will not be without risk; and investment advice must be carefully provided.
RBC Dexia Reappointed By CI
RBC Dexia Investor Services has been reappointed as investor services provider for CI Investments Inc. This service extension, the culmination of a comprehensive competitive bidding process, is the fourth successive five-year term that CI has engaged with RBC Dexia to service CI's $75 billion in assets under administration. Under the new agreement, RBC Dexia will provide CI with a range of investor services including custody, fund administration, securities lending, and foreign exchange.
Manulife Buys Osaka Property
Manulife Real Estate has acquired the Dojima East Building in Osaka, Japan. The newest addition to its global real estate portfolio, it marks the company's first property investment in Osaka. Built in 2007, the building is equipped with state-of-the-art building systems and features ground floor retail space and underground parking. It is located in the heart of Osaka's central business district. Manulife's commercial real estate portfolio in Japan totals more than 900,000 square feet and includes assets in regional centres across the country including six properties in Tokyo.
CPPIB Gets Share In Shopping Centre
The Canada Pension Plan Investment Board (CPPIB) has acquired a 50 per cent joint venture interest in Northland Shopping Centre in Melbourne, Australia. Northland is a 92,380-square-metre super-regional shopping centre. The 50 per cent interest in Northland is being acquired from the Gandel Group. Colonial First State Retail Property Trust holds the other 50 per cent interest and will continue to manage the property.
Claymore Using CIBC Mellon
Claymore Investments has appointed CIBC Mellon Global Securities Services Company to deliver global custody, fund valuation, and a suite of recently-expanded exchange traded funds (ETF) servicing capabilities. By leveraging the capabilities of its parent company, BNY Mellon, CIBC Mellon has enhanced its ETF solution to include indicative NAV production, automated basket creation and redemption features, and a designated broker interface offering flexible, end-to-end automation of the order process.
Liquidity Sources Examined
Exploring traditional and non-standard sources of liquidity will be examined at the FPL Canadian Trading Conference. A panel of Rizwan Awan, managing director, quantitative execution services, BMO Capital Markets; Chris Sparrow, director global equity, RBC Capital Markets; Adam Striffler, vice-president and head of Canada business and product development, Goldman Sachs Electronic Trading; and Vidis Vaiciunas,vice-president, head of trading, Highstreet Asset Management; will discuss liquidity access in a fragmented market environment including dark pools and crossing networks, market and opportunity impact, smart order routing, and algorithmic strategies. It takes place June 9 in Toronto, ON. For more information, visit www.fixprotocol.org/canadianconference2011
Focus On ‘Politics Of Pensions’
The ‘Politics of Pensions’ will be the focus of a session at the ‘2011 Association of Canadian Pension Management National Conference.’ Senior government relations practitioners at Earnscliffe Strategy Group ‒ Tom Trbovich, Charles Bird, Janet Ecker, and Tom Sweeting ‒ will examine the Canadian political landscape in 2011 with a focus on the key issues driving policy development at the federal and provincial level, and how these factors are likely to impact the future of pension management in Canada. It will address the realities of government decision-making with respect to pensions and retirement income. It takes place September 13 to 16 in St. John’s, NL. For more information, visit http://www.acpm.com/national.aspx
Wednesday, June 1, 2011
Superintendent Can Act Against Employers
The Manitoba Pension Commission's Office of the Superintendent will be allowed to take direct action against employers who fail to make the required contributions to the plan. The legislative changes would ensure compliance from employers and protect workers' pensions. They expand the powers of the superintendent of pensions to issue orders for contributions a corporation has failed to pay into a pension plan. The superintendent could also file orders in court so they may be enforced as if they were a court judgment. As well, they authorize the superintendent to register a lien against all property of an employer, including real estate, in the amount of the contributions the employer failed to pay into a plan and hold directors of a corporation liable for contributions to a pension plan the employer has failed to pay. Additional changes would give the government authority to negotiate agreements with other jurisdictions in Canada to ensure Manitoba workers' pensions are protected regardless of where their employer's head office is located.
AIMA Publishes Guide For Investors
The Alternative Investment Management Association has published a guide for investors and managers that reflects preferences and priorities for institutional investors and investment allocations. The aim of the guide is to outline investor views, expectations, and preferences on a variety of operational and organizational issues which are increasingly the focus of due diligence reviews and discussion among investors and fund managers. ‘A Guide To Institutional Investors’ Views And Preferences Regarding Hedge Fund Operational Infrastructures’ begins with a discussion of ‘Governance.’ It also looks at risk, investments, capital, and operations.
Global Bonds Offset Inefficiencies
Global bond investing can offset some of the structural inefficiencies and challenges of the Canadian debt markets and potentially offer greater upside potential, says a study by Russell Investments. The report suggests that despite the fact that Canadian debt markets have withstood the financial crisis better than most global bond markets, bond portfolios concentrated in Canada may face challenges that could limit potential returns due to the smaller investment opportunities available in this country compared to the larger international bond markets. It also addresses the question of whether Canada offers better credit risk relative to global markets and concludes that historical default and recovery rates show that Canadian bonds offer no meaningful credit risk advantage over global bonds. It concludes that by staying only in Canadian sectors, investors limit the substantial total return opportunities available in global bonds. The study is at http://www.russell.com/ca/research
First Of ‘Phase II’ Reforms Implemented
Amendments to Ontario’s Pension Benefits Act regulations implement the first of many anticipated regulatory measures stemming from ‘Phase II’ of Ontario’s pension reform initiative, says a Hicks Morley ‘FTR Now.’ The amendments affect actuarial valuations, annual statements, and jointly-sponsored pension plans. They change the definition of ‘solvency concerns’ making annual actuarial valuations required where the employer excludes plant closure benefits or permanent layoff benefits from liabilities in the actuarial valuation; the ratio of solvency assets to solvency liabilities is less than 0.8; and solvency liabilities exceed the solvency assets by more than $5 million. The prescribed requirement for pension plan annual statements is also changed. Annual statements will be required to include information regarding the transfer ratio of the pension plan set out in the two most recent actuarial valuations, and an explanation of the transfer ratio and how it relates to the level of funding of members’ benefits. Finally, JSPPs that existed on August 24, 2010, will not be required to fund a solvency deficiency as of a valuation date on or after December 31, 2010. While these plans must still prepare actuarial valuations, the actuarial valuation may deem any solvency deficiency to be a number not less than zero, such that special payments are not required with respect to the solvency deficiency.
Intact Acquires AXA Canada
Intact Financial Corporation will acquire AXA Canada, the 6th largest home, auto, and business insurance company in the country. As a result of the transaction, IFC will expand its position in Canada by increasing its direct premiums written by $2 billion to more than $6.5 billion. Charles Brindamour, president and chief executive officer of Intact, says the acquisition will enhance and accelerate its efforts towards building a world-class Canadian-based property and casualty insurer with the ability to succeed in an increasingly competitive environment.
Fund Expense Survey Available
The 2011 version of the ‘Survey on Pension Fund Expenses’ will provide expanded analysis for sponsors of registered pension plans, says the Fraser Group. Open to all pension plan sponsors in Canada, it will compare plan expenses relative to asset size and plan type. Among the expense categories in the survey are consulting and administration fees, investment management, legal/audit, and governance. The survey is at www.pensionfundexpenses.ca
Beneplan Refunds Premiums
Beneplan Inc has refunded more than $750,000 of unused health insurance premiums to members of its group benefits co-operative. The co-operative, founded in 2000, is a buying group for small and medium sized companies to purchase group benefits in order to reduce costs. Since 2000, it has given back almost $4 million to members. This includes a refund on unused life insurance premiums. "We try to be the Wal-Mart of benefits in Canada," says Mark Faiz, founder and CEO.
Caisse Involved In Spie Bid
The Caisse de dépôt et placement du Québec and two partners are in talks to buy French electrical engineering company Spie. Its partners are Clayton Dubilier & Rice LLC, a New York-based buyout firm, and Paris-based Axa Private Equity. Spie is owned by PAI Partners, a European investment fund.
Confidence Hits High Level
Investor confidence rose globally to its highest level since December, increasing 6.8 points in May to 104.1 from April’s revised reading of 97.3, says the State Street Investor Confidence Index for May 2011. The increase was led by North American investors, among whom confidence rose 7.7 points to 106.3 from April’s revised level of 98.6. After weakening in recent months, European investor confidence increased, rising 5.2 points to 79 from April’s level of 73.8. Asian investor confidence fell 2.7 points to 96.7 from April’s revised level of 99.4. It has found the low level of confidence among European investors has begun to turn around over the last two months. However, in contrast, the slight reduction in Asian growth prospects has lowered confidence in that region.
Panel Examines Drug Pricing
David C. Wetherald, vice-president, human resources and legal, Toromont Industries Ltd.; Steve Semelman, president, Gemini Pharma Consultants; and Cathy Fuchs, White Willow Benefit Consultant; will examine ‘Why Generic Drug Pricing Legislation is Not Enough’ at a Connex Health session. They will explore what has taken place inside private sector drug plans before and after changes to generic drug pricing legislation across the country. The session also features Mike Sullivan, president, Cubic Health, who will share the results of research on a set of tens of millions of drug claims in Canada over the past two years and the implication of these research findings for plan sponsors. It takes place June 9 in Burlington, ON. For more information, visit www.connexhc.com
Kenneth French, director, head of investment policy and director of investment strategy, at Dimensional Fund Advisors, will discuss value and growth around the world at IMN’s Canada Cup. The event explores ETFs and their role in the context of the overall investment strategy. It takes place June 7 and 8 in Toronto, ON. For more information, visit http://www.imn.org/Conference
Tuesday, May 31, 2011
Canadians More Committed To DB
Despite the challenges Defined Benefit pension plans have faced in Canada over the last two decades, Canadian employers that sponsor these plans seem more committed to maintaining them than organizations in the United States and the United Kingdom, says Aon Hewitt’s ‘2011 Global Pension Risk Survey.’ The third annual version of the survey found these Canadian plan sponsors are increasingly developing long-term risk management strategies. "There has certainly been a decline in the number of Canadian organizations with DB plans over the years," says Tom Ault, a senior retirement consultant in its Vancouver, BC, office. "Nevertheless, there are more ongoing DB plans, relatively speaking, in this country than there are in other economies. In the 2011 survey, 39 per cent of Canadian respondents had closed their DB plans for existing members. That figure is close to 80 per cent in the U.S. and the UK, according to survey feedback." Canadian sponsors say the three primary reasons for keeping their plans are that it aligns with the organization's total rewards philosophy; union pressure; and competitive issues.
Unions Call For Halt To Pension Attack
Three of the unions representing Air Canada workers ‒ the CAW, CUPE, and the IAMAW ‒ are calling on Air Canada to halt the attack on its workers' pension plan in the current round of contract talks. In a joint statement, they say that the unions and their members are fully intent on maintaining the current pension model, although the exact details of the plan will be subject to negotiation. It notes they experienced an erosion in the financial well-being of their pension plan ‒ a plan to which the workers contribute through significant payroll deductions. As well, most recently, to assist the company through the difficult economic aftermath of the global financial crisis of 2008-2009, the workers and their unions agreed to the deferral of major pension contributions that would have otherwise been required under federal pension law yet now they have been presented with offensive demands for dramatic, permanent reductions in pension benefits for existing employees ‒ and a parallel demand to eliminate defined pension benefits altogether for new employees. It also notes the fact that Air Canada's top executives continue to receive extremely generous DB pension credits disproves the claim that DB pensions are no longer feasible or desirable. It says they will make the maintenance of the plan, including employer contributions that are the necessary consequence of past funding deferrals, a central priority during the coming collective bargaining with Air Canada.
Financial Plan Creates Premium
Those who have a financial plan in place enjoy a clear 'planning premium' with hard financial benefits, yet 65 per cent of Canadian respondents reported not having a financial plan for their future, says a global survey from HSBC. The sixth ‘Future of Retirement’ study, ‘The Power of Planning,’ found, on average, Canadian planners have amassed 245 per cent more money in their retirement plans compared to non-planners. As well, of those Canadians who worry about coping financially when they retire, 63 per cent report not having saved enough as their number one concern. Only 49 per cent of global respondents shared this worry. Canada had one of the lowest percentages of respondents who indicated having a financial plan for their future. Of the 17 countries surveyed, Canada placed 14th, behind Malaysia, China, India, and Taiwan. The only countries that scored lower than Canada were France, Mexico, and Argentina.
GARS Available To Institutional Investors
Standard Life Investments’ Global Absolute Return Strategies (GARS) Portfolio is now available to institutional investors in Canada through Standard Life Investments and Standard Life’s Group Savings and Retirement’s Quality and Choice Investment Program. It was originally launched in the UK in September 2005 to satisfy the requirements of its own Defined Benefits pension plan. The success was compelling enough to capture the attention of institutional investors in Europe, Australia, the U.S., and now Canada.
Monday, May 30, 2011
MVL Misleading Methodology
The market value of liabilities (MVL) is a misleading methodology for valuing public sector pension liabilities, says Segal’s ‘Public Sector Letter.’ It says current practice for measuring the pension liabilities of public sector pension plans calculates what is called an actuarial accrued liability (AAL), which encompasses both current information and reasonable expectations of future events. The MVL approach differs from AAL in that it ignores expected investment earnings and instead uses a market rate of interest on fixed income instruments. It also uses a much narrower definition of future benefits to calculate a plan’s liabilities, one that assumes pay and service are frozen at current levels. It says these two approaches to discounting – using long-term expected returns versus current market bond rates – will result in very different measures of a plan’s liabilities. In a low interest rate environment, an MVL measure will produce a liability greater than the current expected rate of return method, and vice versa.
Target Moving Into HOOPP Building
U.S. retailer Target has chosen HOOPP’s AeroCentre V building in Mississauga, ON, for its Canadian head office. “HOOPP is thrilled to welcome Target’s Canadian head office to AeroCentre V,” says John Crocker, its president and CEO. “This award-winning property was specifically designed to attract leading companies with sustainability goals and it clearly has achieved that objective.” Target will be leasing 180,000 square feet and the majority of the Target team will begin moving in early in 2012.
Groome Speaks In Montreal
AIMA chairman Todd Groome will speak on what AIMA is doing globally in the areas of securities, trading, and fund regulation as well as how other geographies are working with regulators and industry to find a balance after recent turbulent times at a session in Montreal, QC. It takes place June 1. For more information, contact email@example.com
Registration Opens For Ontario Conference
Registration is now open for the ‘2011 CPBI Ontario Regional Conference.’ A featured session will be ‘A Lifetime Retirement Savings Limit: Why you need it and how it will completely change retirement saving in Canada.’ It features James Pierlot, of Pierlot Pension Law; Malcolm Hamilton, of Mercer; and William B.P. Robson, president and chief executive officer, C.D. Howe Institute. The conference takes place October 19 to 21 in Ottawa, ON. For more information, visit http://www.cpbi-icra.ca/
June Interest Rate Assumptions
The interest assumptions required to calculate commuted values for an event which occurs in any month up to and including June 2011 are now available at www.an-actual-actuary.com. An Excel spreadsheet on the website contains worksheets on:
• Commuted Values Feb 2011 CIA
• Marital Breakdown ‒ CSOP 4300 (May 2009)
• Annuity Proxy for Solvency Calculations for Non-Indexed & Fully-Indexed Pensions
• Minimum Interest on Employee Required Contributions
• HISTORICAL ‒ Commuted Values: 2009 Basis (Now Frozen)
• HISTORICAL ‒ Commuted Values: 2005 Basis (Now Frozen)
• HISTORICAL ‒ Commuted Values: 1993 Basis (Now Frozen)
Friday, May 27, 2011
OMERS Wants More Private Equity
OMERS is aiming to bolster its private equity portfolio as it builds on a strategy of buying companies and working with existing management to enhance value, says a report from Reuters. It says it will look for deals in the $100 million to $500 million range. It recently teamed with private equity firm Berkshire Partners LLC in a bid to buy Husky International from Canadian buyout shop Onex Corp. Its private equity allocation is about $5.5 billion and it has about a dozen companies in its portfolio.
Buy-in Comes To U.S.
Prudential Retirement has completed the first pension buy-in transaction in the U.S. Hickory Springs Manufacturing Company signed on as Prudential's inaugural client. Buy-ins, which are well-established in the UK pensions market, guarantee to meet the pension plan liability payments as they fall due. The guarantee is provided by the insurer in return for a premium. The insurance contract becomes an asset of the pension plan and is, in effect, a match for the benefits covered by the policy. It allows Defined Benefit plan sponsors to transfer risk while preserving plan funded status. The buy-in does not trigger settlement accounting or accelerate pension contributions.
Total Compensation Ensures Competitiveness
A total compensation package ensures labour market competiveness, says William Pallett, senior vice-president, people resources, at Delta Hotels. He told the Conference Board of Canada’s ‘HR Service Delivery Excellence’ keynote presentation ‘Transforming HR for Service Delivery Excellence and Greater Strategic Value’ event that it is now in the process of changing its HR strategy despite its success over the last 10 years. One reason for making the change is the impending labour shortage. He predicts a shortfall in the hospitality industry of three to 22 per cent by 2016. This means it needs to source, select, and retain the best talent. For example, it is doing major work on its benefits plan which it will roll out next year.
Debt Delaying Retirement
More than half of Canadians who are carrying debt are uncomfortable with it and some expect they’ll have to delay retirement in order to pay down their debts, says a survey by Investors Group. It found 75 per cent said they are in debt and more than 50 per cent said purchasing property is the main reason they’re carrying debt. Home renovations were to blame for debt by 37 per cent while 28 per cent have borrowed to make a financial investment and 18 per cent took on debt to invest in their education. In order to pay back what they owe, 35 per cent of respondents said they simply plan to curb their spending while 14 per cent are considering delaying retirement and working to pay down their debt.
Canadians Interested In ‘Career Monogamy’
Canadian employees are interested in career "monogamy," says Tracy Malcolm, a senior consultant at Towers Watson. Speaking at the Conference Board of Canada’s ‘HR Service Delivery Excellence’ session ‘From Research to Your Reality ‒ Adapting HR to a Changing World,’ she said its surveys show that employees are interested in staying with their current employer if they get the right support in areas such as career management. Employees are focusing on the employment deal, she said, and are interested in a range of rewards. For example, even among the young demographic in workplaces, pensions come up as an important retention tool.
Thursday, May 26, 2011
Maple Commencing Offer For TMX
Maple Group Acquisition Corporation, a corporation formed by five of the country's largest pension funds and four Canadian bank-owned investment dealers, intends to commence an offer to acquire all of the issued and outstanding common shares of TMX Group Inc. The announcement follows a decision by the TMX board of directors to reject what Maple believes is a superior proposal to the proposed London Stock Exchange takeover of the TMX Group and the TMX announcement that it has accelerated the date of its special meeting to consider the LSE take-over. Speaking on behalf of the Maple investors, Luc Bertrand, vice-chairman of National Bank Financial, says, "We are disappointed that the TMX board declined our repeated invitations to engage us in discussions. Had they done so, we are confident that we could have addressed any questions or concerns they might have regarding our superior proposal. By choosing not to do so, and now by accelerating the timing of their meeting to consider the LSE take-over, they have given us no choice but to make our offer available directly to TMX Group shareholders."
Answer Somewhere In Middle
While the debate issue was ‘Inflation or Deflation: Which Risk Should You Prepare For?’, the debaters both agreed the reality is somewhere in the middle. AIMA Canada’s 8th annual luncheon debate saw Hubert Marleau, co-founder of Palos Management, arguing for an inflationary future and Derek Holt, vice-president of Scotia Capital Economics, taking the deflation view. Marleau, during the debate, said there was ‘no doubt’ that “we’re entering into an inflationary era” He noted that the Consumer Price Index and Producer Price Index in the U.S. have both been going up for the last six months and accelerating in the past three months. As well, inflation takes place when monetary policy is stimulative when it ought to be tight and this is the current situation in the U.S. “There is an inflationary bias in the economy,” he said, and “there’s going to be far more inflation in the future than we currently have right now.” Holt suggested that the economy is more likely to endure deflation than inflation. The economy is experiencing a “balance sheet recession” as companies continue to deleverage in the aftermath of the financial crisis which is going to “keep inflation at bay for many, many years.” As well, fiscal woes in the U.S. and Europe will weigh heavily on those economies in the coming years. The U.S. economy will begin feeling this pressure in 2013 when it’s required to unveil a fiscal austerity plan. “There is going to be sharp, decisive fiscal drag,” he said, with tax increases and cuts to program spending reducing U.S. GDP growth by up to 2.5 per cent, which will prevent inflation.
Some DC Structures No Longer Suitable
Many Defined Contribution pension plans are in investment structures geared towards target retirement ages no longer suitable for today’s workers, says PricewaterhouseCoopers (PwC). And thousands of people could see the size of their pensions suffer by, in some cases, up to 20 per cent, it warns. It says ‘lifestyle’ investment structures are useful for those people who have predictable retirement horizons. But such structures will become less satisfactory as diversity and unpredictability in retirement timings increases. This means there’s a real danger that, under existing lifestyle default structures, investments will be switched to low growth assets too soon and people could lose the opportunities for valuable higher returns.
EAP App Launched
Morneau Shepell, under the Shepell-fgi brand, has launched ‘My EAP,’ a mobile application (app) for the Apple and RIM families of mobile devices. The app delivers interactive tools, support resources, and access to EAP services. The app reflects the content and features available on Shepell-fgi's website and, through a partnership with LifeSpeak On Demand, it also provides information on a range of personal and work-related topics from experts through streaming video. It has been designed for the Apple iPhone (3G, 3GS, 4), iPod Touch, and RIM's Blackberry Bold, Curve, and Torch models. An application for Google's Android operating system will follow later this year and Morneau Shepell will continue to explore the potential of mobile applications for other devices as well.
Aviva Gets Okay From China
Aviva Investors has received approval for a Qualified Foreign Institutional Investment (QFII) quota of $100 million from the State Administration of Foreign Exchange of China. The approval follows the granting of a QFII licence by the China Securities Regulatory Commission in December 2009 and means Aviva can now invest directly in Renminbi denominated bonds and A shares.
Real Assets Need Consideration
Investors would be well-served to start thinking about how exposure to real assets (TIPS, real estate, commodities, natural resources, infrastructure, etc.) can help position their portfolios for rising inflation, says a report from State Street’s SPDR University. ‘Real Assets, Inflation Protection Solutions with Exchange Traded Products’ suggests that rising food and gas prices are slowly beginning to push inflation higher. However, stocks and bonds tend to generate meagre returns during periods of rising inflation. This means investors may seek to generate positive returns by investing in assets that are potentially driving inflation, such as oil, or providing portfolio diversification during turbulent economic times, such as gold. It says “These real assets have historically outperformed stocks and bonds during periods of accelerating inflation and provided additional potential diversification benefits for investors seeking to control portfolio volatility.”
Young Investors Opt For Equities
In contrast to a prevailing notion that most young investors are eschewing the stock market because of the global financial crisis and a decade of weak stock market returns, they actually have higher equity allocations than prior generations at the same age, says research from Vanguard. ‘Generations: Key Drivers of Investor Behaviour’ shows that from a low point of 40.7 per cent in 2003, the average equity allocation of the youngest participants (age 20) in DC plans it administers rose to 84.7 per cent in 2010, an increase of nearly 45 percentage points. This pattern was more profound for that youngest group but held in general for participants younger than 30. The study found that equity allocations of older participants (generally age 55+) have declined slightly over the past several years. It attributes the study’s findings to the growing use of automatic enrolment programs and the widespread shift from conservative default investments toward balanced options such as target-date funds (TDFs). In addition, more participants in voluntary enrolment plans, particularly those joining in recent years, are choosing to invest in TDFs because of their simplified approach to investing.
Annuity Helps With Workforce Planning
Wednesday, May 25, 2011
Too Much Emphasis On Acute Care
Canadians are not getting full value for the money spent on healthcare, says a report by Morneau Shepell. "The crux of the problem is that our system places too much emphasis on acute care and not enough on prevention," says Fred Vettese, its chief actuary who prepared the Vision Report 'Canada's Health Care System ‒ Time for an Intervention.' The report says Canada has one of the most expensive healthcare systems in the world, but is not getting its money's worth. As a result, a major increase in taxes, reduction in quality of healthcare, or a cannibalizing of other government-provided services is almost inevitable without an overhaul of the current system. 'Possible fixes' include user-based funding, where a nominal fee per doctor visit could reduce the number of questionable consultations, and using health credits to make consumers price-sensitive without restricting access to services. This could also reduce unnecessary utilization.
FOHFs Target Smaller Investors
Funds-of-hedge-funds (FOHFs) managers are beginning to target smaller investors as larger institutions increasingly invest directly, says research by Standard & Poor’s. It says assets under management in aggregate hedge funds have grown by more than twice as much as those in FOHFs over the past 12 months as institutional investors increasingly favour investing directly.
TD Offers Low Volatility Funds
TD Asset Management Inc. (TDAM) has launched a fund that meets the rising demand for exposure to equities represented by the MSCI All Country World Index. The TD Emerald Low Volatility All World Equity Pooled Fund Trust was initially launched to meet the specific needs of a large pension plan which seeded the fund with $100 million in capital. Robin Lacey, vice-chair, says that “The low volatility strategy has established itself over the past 18 months in the Canadian market and this risk-focused approach can also be a prudent way to deploy capital in emerging markets which have potential for enhanced returns, but where the risk levels are also potentially high.” This is the third low volatility fund launched by TDAM since September 2009.
High Quarterly Return For Private Equity
Private equity returned 7.65 per cent in the fourth quarter of 2010, the highest quarterly return since the second quarter of 2007. State Street Private Equity Index returns show that, in comparison, the return for the third quarter of 2010 was 6.57 per cent. For the fourth quarter of 2009, the return was 5.94 per cent. For the year ended December 31, the return was 19.3 per cent.
HOOPP Earns Thunderbird Award
The Healthcare of Ontario Pension Plan (HOOPP) has won SimCorp’s Thunderbird Award. It was recognized for its use of high-end investment technology to keep the Defined Benefit promise for its 260,000 members. HOOPP was one of three large asset managers in North America to receive the award for “having given public voice” to how it has used the SimCorp Dimension investment platform to successfully deliver its liability driven investing (LDI) strategy.
Hedge Fund Leverage Down
The average standard leverage used in hedge fund strategies decreased to 1.1 times investment capital from 1.27 for the year ended March 31, says Hedge Fund Research’s ‘HFR Leverage Report. It says the average margin to equity declined to 16.98 per cent from 17.13 per cent during the same time period. About one-third of all funds do not use leverage, up four per cent from a year earlier. More than half of the funds used leverage of between one and two times their investment capital, while funds with more than $1 billion in assets used leverage of between two and five times their investment capital.
While most employers will continue to offer health benefits to active employees, some are likely to limit their liability and move to a defined contribution subsidy for coverage, says a Mercer ‘Perspectives’ report. It says that employers will more aggressively manage healthcare and productivity costs using new benefit design, new provider networks, new care management programs, and more financial incentives. One potential path to optimizing the value of health benefits starts with offering a low-cost ‘core plan’ that is the benchmark for the employer’s cost sharing. To keep all plans affordable, it expects that employers will utilize targeted health management programs with incentives for healthy behaviours.
Regulation Creates New Barriers
New barriers to international clearing could be erected by proposed new regulations for over-the-counter (OTC) derivatives in the European Union, says the Alternative Investment Management Association (AIMA). While it strongly supports mandatory central clearing of eligible OTC derivatives contracts, it is calling on EU lawmakers to reconsider a key provision of the European Market Infrastructure Regulation (EMIR), the proposed future regime for mandatory clearing of OTC derivatives in the EU. This provision could, in effect, exclude EU-established financial services providers from using central counterparties (CCPs) which are not located in the EU.
Responsibility Gap Exists In DC
There's a big gap between what employees and employers believe is the responsibility of Defined Contribution sponsors in encouraging adequate retirement savings, says research commissioned by BlackRock. It found that 52 per cent of employees said sponsors weren't helpful in safeguarding assets after retirement and only 14 per cent of employers “feel a great deal of responsibility.” The research also found that 57 per cent of participants said sponsors were not helping them “make sure my money lasts all through retirement,” while only 17 per cent of employers said they “feel a great deal of responsibility” to assist in this goal.
Target-date Funds Boost Equity Exposure
The greater use of target-date funds and automatic enrolment in Defined Contribution plans has contributed to higher allocations by participants in equities, says a Vanguard Group Inc. study. It found participants up to age 35 who invested in target-date funds, as of December 31, held an average 8.5 percentage points more in equities than those who did not. ‘Generations: Key Drivers of Investor Behaviour’ shows those aged 36 to 54 who invested in target-date funds held 7.9 percentage points more in equities than those who did not.
Saguenay Strathmore Created
Saguenay Capital and Strathmore Capital have merged to create Saguenay Strathmore Capital, a global alternative investment manager focused on customized fund of hedge fund portfolios. With offices in New York, NY; London, UK; and Toronto, ON; and $2 billion in combined assets under management and advice, the merged group will be able extend its U.S. manager coverage and European manager research. It reunites two former senior Bankers Trust executives. Brian Walsh, former co-head of the global investment bank at Bankers Trust, becomes chairman and chief investment officer; and Stephen Harper, former Bankers Trust senior managing director, becomes chief executive officer.
Pierlot Discusses Tax Impact On Plan Design
James Pierlot, of Pierlot Pension Law Professional Corporation, will examine the current tax and regulatory impact on pension plan design at the Toronto CFA Society’s ‘2011 Annual Pension Conference: New Approaches to Today’s Issues.’ He will provide an overview of the current regulatory/tax environment, its impact on pension plan design, and insights into the proposed reforms to federal tax rules. It takes place June 6 in Toronto, ON. For more information, visit www.torontocfa.ca/
Tuesday, May 24, 2011
Ontario, Quebec Work On Joint Rules
Ontario and Quebec are creating rules that will make the regulatory environment for certain pension plans more efficient and transparent. An agreement between the provinces would establish clear rules on how multi-jurisdictional pension plans (MJPPs) are administered. Specifically, it would set out how these plans are regulated and clarify unique issues that are not addressed in existing pension statutes. It would also clarify the rules that apply to these plans and allow a single supervisory authority to regulate an MJPP. The agreement would apply to a pension plan when the plan is registered with the pension regulator in either province and provides benefits to members, or former members, in both provinces.
CPPIB Ready For Expanded Role
The investment arm of the Canada Pension Plan is prepared for any expanded role, says David Denison, president and chief executive of the CPP Investment Board. Expanding the CPP has been suggested as a potential solution to boost retirement earnings for aging baby boomers as they leave the workforce and there are fewer workers to pay into the fund. Any expansion would give the CPPIB more money to manage, but Denison says there wouldn’t be much change in strategy because it is already preparing for growth in the multi-billion dollar fund.
U.S Headed For Disaster
The U.S. is walking in lock-step towards a financial disaster and when it happens in five to 10 years, it will do so with a ‘big bang,’ says Paul Kedrosky, a U.S. economist and author of the ‘Infectious Greed’ blog. A keynote speaker at the CPBI FORUM 2011, he said there are structural changes in the U.S. which are going to determine its future. For example, he said the U.S. has become a post-manufacturing economy as manufacturing now accounts for only about five per cent of activity. While this has been happening for years, it was masked by activity in the home construction areas. However, coupled with the decline in real estate in the U.S., the jobless rate has been driven up and it is having the biggest impact on people without college degrees who were working in manufacturing or housing construction. These people are now out of work 27 or more weeks before they find a new job. As well, despite the deficit, its political leaders cannot find a solution to reducing the deficit which is palatable to everyone. In fact, he said Americans want the tax rates of Hong Kong with the social services of Canada.
Institutional Investors Bullish On ETFs
Institutional investors are increasingly bullish on using Exchange-Traded Funds (ETFs) in their portfolios, says a Greenwich Associates study. Institutional use of ETFs has increased steadily over the past several years. The results of this study indicate a continuation of that trend as 48 per cent of asset management firms expect to increase portfolio allocations to ETFs between now and 2013. Of those, slightly more than half expect to increase ETF allocations by five per cent or more. Though conventional thinking may be that ETFs only provide passive exposure, many respondents view their ETF investments as ‘active’ exposures. Among asset managers, 53 per cent say that ETFs are used to gain active exposure to international equities and 43 per cent use ETFs for active exposure to domestic equities. A small, but growing, group of investors also utilize ETFs as a liquidity sleeve in their portfolios. In fact, 10 per cent of institutional funds and asset managers are using ETFs for this purpose.
Time To Join Health Groups Now
The time is now to consider joining employer health groups in an effort to reduce the cost of prescription drugs, says Hugh Paton, president of Paton Consulting Inc. He told the CPBI Forum 2011 session ‘Employer Health Groups: How Can They Work, What Can They Achieve?’ that a Competition Bureau report from 2008 said there are $600 million in annual savings and plan sponsors are not getting a share of that. Provincial drug reform is delivering a fraction of the potential for lower drug costs. He called it a ‘David and Goliath’ battle where sponsors are facing opposition from big drug companies and pharmacy chains. As a result, it makes it easy for the drug companies to start marketing new drugs to doctors as brand names come off patent and generics are available to replace them. One solution as well, he said, is to study the U.S. as things have been done there in the last 10 years that are starting to work.
HSBC Offering CIVETS Fund
HSBC Global Asset Management has launched a CIVETS fund for institutional investors. The HSBC GIF CIVETS fund targets long-term returns from capital growth and income by investing in a diversified portfolio of equities from the stock exchanges of the CIVETS countries ‒ Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa. The fund also has the ability to invest up to 25 per cent in non-CIVETS nations with similar demographics such as Mexico, Nigeria, Philippines, Thailand, Malaysia, and Saudi Arabia. The CIVETS nations, which are among the next generation of emerging markets, echo many of the demographic qualities inherent in larger developing markets such as the BRIC nations ‒ Brazil, Russia, India, and China. Collectively, the CIVETS group has a population of around 600 million, representing some eight per cent of the global population.
Expat Benefits Challenging
Managing expatriate benefits is a real challenge for pension plan sponsors, says Jill Masters, director, pension and benefits, at Goldcorp Inc. Speaking at the Plan Sponsor Roundtable ‘Global Benefit And Pension Plan Sponsorship: Challenges Opportunities And More’ at the CPBI Forum 2011, she said right now they only have about 100 expatriates, but it takes a lot of time to manage them. And, it is not just the benefits, dealing with issues of mobility and immigration are another time-consuming challenge. When it comes to medical and life insurance, she said it is easy as a sponsor just needs to find a good provider. However, they are challenged finding retirement savings solutions that are easy to manage. Only U.S. expatriates are simple as the 401(k) is a suitable solution. For employees for the rest of the world, they are still looking.
First Nations Oppose TimberWest Sale
A first nations group on Vancouver Island, BC, is opposing the $1 billion sale of TimberWest Forest Corp. to two pension funds. The Hul’qumi’num Treaty Group, a coalition of six first nations, wants compensation from the federal government for land it argues was illegally taken in the 19th century and it is opposing the TimberWest deal to highlight its ongoing claim. Some of the Hul’qumi’num traditional territory overlaps with land owned by TimberWest that is part of the company’s $1 billion sale to British Columbia Investment Management Corp. and the Public Sector Pension Investment Board.
Friday, May 20, 2011
Pension Buyouts Possible
The Ontario budget gave approval for the Nortel pension plan to put through what could be North America’s first pension buyout, says Ronald Olsen, vice-president at Sibson Consulting. With the legislation allowing an alternative to traditional annuitization, Olsen believes this will pave the way for the buy-out market to develop across Canada. Nortel went under in 2009 leaving behind a pension plan worth $2.5 billion. Canadian law required all wound-up funds to be annuitized, but capacity was tight in the Canadian non-indexed annuity market, while the indexed annuity market is virtually non-existent in Canada. As a result, plan members lobbied the government to be allowed to seek new ways to manage what was left of their pension fund.
Sponsors Slow To Innovate
Despite the ever-escalating cost of prescription drugs, Canadian organizations that sponsor benefit plans are slow to adopt more innovative solutions to manage this expense, says a survey by Aon Hewitt. As a result, drug costs continue to eat up 60 per cent to 80 per cent of medical benefit plan budgets, leaving organizations with concerns about whether or not they can continue to provide this coverage for their employees. It says prescription drug costs have risen by at least eight per cent per annum over the last few years and average $566 per claimant and $1,013 per employee (including dependant claims) per year. However, several of the more commonly prescribed drugs will soon lose patent protection, likely resulting in the availability of less expensive generic versions. In addition, a number of provinces have passed legislation that regulates the price of generic drugs, eventually decreasing their cost to 25 per cent of their brand name equivalents. With the prescription drug landscape changing, plan sponsors may want to think long term when it comes to developing a cost management strategy, says Tim Clarke, its health and benefits innovation leader.
‘Low-for-long’ Hurts Pension Funds
With the weak growth of the major advanced economies, interest rates in a number of those economies are at extraordinarily low levels and are expected to remain so for an extended period. While stimulative monetary policy is needed to support the global economic recovery, this “low-for-long” scenario creates risk for the global financial system and for the pension industry in particular, says Timothy Lane, deputy governor of the Bank of Canada. Speaking at the Canadian Pension & Benefits Institute FORUM 2011 on ‘The Changing Face of Risk in the Global Financial System,’ he said institutional investors such as insurance companies and pension funds are often expected ‒ or in some cases even required by contract or mandate ‒ to deliver a target rate of return. “In many cases, these targets are now unrealistic and can be met only by taking on more risk than is prudent,” he said. Changes in accounting rules, which use low, risk-free interest rates to discount liabilities while valuing assets at current market prices, increase the pressure to achieve these high returns on a continuous basis. This is a particular instance of the “search for yield” that often accompanies a long period of very low interest rates. It may be associated with excessive credit creation and undue risk-taking as investors seek higher returns, leading to the underpricing of risk and unsustainable increases in asset prices.
CPP Assets Reach Record High
The Canada Pension Plan Fund’s assets under management reached a record high of $148.2 billion at the end of its most recent fiscal year, compared with $127.6 billion at the end of fiscal 2010. That surpassed a previous high of $127.7 billion in June 2008, months before the onset of the global financial downturn. About $15.5 billion of the increase in fiscal 2011 came from investment income. For the five-year period, which includes two years of losses, the fund earned a 3.3 per cent annualized rate of return. That was lower than the four per cent return rate the chief actuary of Canada has estimated would be required for the fund to be sustainable over a 75-year period. However, its annual report says the lower five-year rate of return was an anomaly due to the recession.
Education Prevents Retirement Saving
The rapidly rising cost of post-secondary is preventing many low-income families from saving for retirement, says a study by Statistics Canada. Nearly 80 per cent of families from the highest income quintile report saving for both retirement and their children's post-secondary education. This number plummets to just 20 per cent for the lowest quintile. Conversely, while only five per cent of the highest income families saved for post-secondary education and not retirement, this number grew to 26 per cent for the lowest earners, more than the number that saves for retirement only (21 percent) or both (14 percent).
ETF Association Launched
Three of Canada's leading exchange traded fund (ETF) companies have agreed to collectively launch the Canadian ETF Association (CETFA), an independent national association that will represent and promote the Canadian ETF industry. The focus of the CETFA is to help educate institutional and retail investors as well as the advisor community on the benefits and uses of ETFs, provide industry statistics and commentary on ETF related issues to the Canadian financial media, and advance industry issues with regulators, government agencies, and interested third parties. Over the last five years, assets in Canadian-listed ETFs have grown an average of 27 per cent annually, from $12.3 billion in December 31, 2005, to $40.8 billion currently. There are almost 200 ETFs listed on the TSX as of April 30, 2011.
The ETF providers involved are BMO ETFs, Claymore Investments Inc., and Horizons Exchange Traded Funds Inc.
Sarona Commits To Private Equity Funds
Sarona Asset Management’s Sarona Frontier Markets Fund I has committed $3.5 million to two private equity funds. It has committed $2 million to the South Asia Clean Energy Fund and the remainder to the Fanisi Venture Capital Fund. "Investments in frontier market SMEs that serve the needs of increasing domestic and regional consumer demand will allow for the growing prosperity, health, and wellness of millions within the middle and lower middle classes," says Gerhard Pries, its president.
De-risking Requires Discipline
Defined Benefit pension plan sponsors need to be disciplined if they want to de-risk their plans, says Ian Markham, senior actuary and Canadian retirement innovation leader, Towers Watson. He told the Canadian Pension & Benefits Institute FORUM 2011 session ‘Pension Trends After The Meltdown’ that as plan funding levels improve, the desire to de-risk may, in fact, decline. The “memory of the pain” diminishes and by the time the plan is 100 per cent funded, the desire to de-risk may disappear, he said. However, after being burned twice, he has found that point has been made with pension committees. As well, he said part of the process requires the plan to be ready to act as the window of opportunity to de-risk can disappear quickly.
Emerging Manager Collective Funds Offered
Northern Trust has launched two emerging manager collective funds for institutional investors. The Emerging Manager U.S. Equity Funds are designed to provide access to smaller, undiscovered investment boutiques with the primary objective of generating excess returns for corporate and public pension plan investors. The funds currently utilize 11 sub-managers in a multi-manager structure.
BlackRock Repurchases Shares
BlackRock will repurchase Bank of America Corp.'s remaining 13.6 million shares in the money management firm. The repurchase was for a roughly seven per cent stake in the company. The shares will be retired, boosting earnings per share for owners of the remaining 183.5 million shares.
Thursday, May 19, 2011
Prescription Drug Spending Will Slow
Worldwide spending on prescription drugs will slow in the next five years, but will still surpass $1 trillion by 2014, says IMS Health. Spending will rise three per cent to six per cent per year through 2015, with much of the growth coming in China, Brazil, Russia, and India. By 2015, almost half of all pharmaceutical spending will go to low-cost generic drugs instead of costlier brand-name medications ‒ which were once responsible for an overwhelming majority of drug costs ‒ because the patents on many top-sellers will expire in the next few years.
Workplace Wellness Cause Advanced
Sun Life Financial is committed to advancing the cause of workplace wellness, says Donald A. Stewart, its CEO. Speaking at its annual meeting, he said it has a unique opportunity as a leading provider of health benefits and wellness programs to help customers understand the interaction between health and prosperity. Among the initiatives it has underway is the creation of the Sun Life Wellness Institute, a health and wellness knowledge exchange for Canadian employers providing evidence and insight that will help influence positive outcomes in the overall health and long term well-being of working Canadians.
Men And Women More Alike
When it comes to work and family, men and women are more alike than different, says the ‘Global Study on Men and Work-Life Integration.’ This finding conflicts with a widely held assumption that male identity is rooted in work whereas women place a higher priority on personal/family life. Results from a research study of employees around the world reveal that in terms of work identification and personal/family identity, there is little difference among generations or between men and women. Instead, the tangible difference can be found between emerging and developed countries, with work identification registering much higher in emerging markets than in developed ones.
ISCEBS Session Looks At Record Retention
‘Management and Record Retention Plus Changes to CPP’ will be the focus of an ISCEBS Toronto Area Chapter seminar. It will examine topics such as records management and retention policy for pension records and upcoming legislated changes to the Canada Pension Plan. It takes place June 16 in Toronto, ON. For more information, visit http://www.iscebs.org
Role Of ETFs Explored
‘Celebrating a Decade of Bringing the Canadian Marketplace Together!’ will be the theme of IMN’s ‘10th Annual Canada Cup of Investment Management.’ The event explores ETFs and their role in the context of the overall investment strategy. It takes place June 7 and 8 in Toronto, ON. For more information, visit
Wednesday, May 18, 2011
Majority Expect Successful Retirement
An overwhelming majority of Canadians approaching retirement expect to have a successful retirement. Yet, more than a third are worried they won’t have enough money, says a poll by the Royal Bank of Canada. The ‘2nd Annual RBC Retirement Myths & Realities Poll’ found that 90 per cent of respondents aged 50 plus who have not yet retired expect to have a successful retirement, yet 36 per cent are worried that they do not have enough money to live well and do what they want. In addition, Canadians aged 50 plus who are not yet retired are expecting to live into their mid- to late-80s, with 46 per cent basing this longevity projection on family history and 17 per cent on their current health. They also anticipate that, by their mid- to late-70s, their present lifestyles will change due to health or disability constraints, leaving approximately a 10-year gap when they may become more dependent on others. To financially support their retirement years, pre-retirees list their top income sources as RRSPs/RRIFs ‒ 90 per cent; government and employer pension plans ‒ 84 per cent and 58 per cent respectively; Old Age Security ‒ 66 per cent; and equity in their homes ‒ 56 per cent.
Teachers’ Complies With Stewardship Code
The Ontario Teachers Pension Plan has issued a report detailing how it complies with the seven principles of the UK Stewardship Code. The code seeks to improve engagement between institutional investors and investee companies. Teachers’ has voluntarily chosen to report on its stewardship activities to the Financial Reporting Council, which established the code in 2010. Institutional investors not domiciled in the UK are not required to report against the code, although they may do so voluntarily. The principles include requirements that, for example, institutional investors publicly disclose their policy on how they will discharge their stewardship responsibilities and have a robust policy on managing conflicts of interest in relation to stewardship.
OMERS On Course To Return To Surplus
OMERS is on course with its three-part strategy to return the plan to a surplus position over the long term. “Our members have asked whether contribution rate increases are still necessary, given that the plan had such strong investment results over the past two years since the 2008 market downturn,” says Andrew Fung, its chief actuary. “The bottom line is that all three parts of the OMERS funding strategy – temporary contribution increases, temporary benefit changes, and OMERS investment strategy – are necessary to return the plan to surplus over the long term.” The OMERS primary plan has $53 billion in net assets and its current funding deficit stands at $4.5 billion. Current projections show the funding deficit peaking at around $8 to $9 billion by 2012 before it starts to decrease. Strong returns and temporary rate/benefit measures are key to this multi-year plan, he says.
Buyout Activity Continues To Grow
Activity in the Canadian buyout and private equity (PE) market showed continued growth in the first quarter of 2011, building on trends that emerged in 2010, says Canada’s Venture Capital & Private Equity Association (CVCA) and research partner Thomson Reuters. The data reveal that buyout and other PE deals done in Canada totalled 40 in the quarter, up 25 per cent from the year before. Disclosed deal values rose even more substantially, totalling $2.2 billion, or 74 per cent more than last year. These trends were consistent with market developments in North America and around the world in the early months of the year.
Growth Outlook Confidence Dips
Investor confidence in the outlook for global growth and corporate profits has dipped, says a survey of fund managers from BofA Merrill Lynch. It reports that the proportion of its survey panel believes that the world economy will strengthen in the next 12 months has fallen to a net 10 per cent, down from 27 per cent in April and 58 per cent as recently as February. Similarly, only nine per cent now expect corporate profits to improve in the coming year. This retreat in confidence is most evident in Europe, the survey notes. Expectations there turned negative in May with a net eight per cent expecting the region’s economy to weaken in the next year. Just two months ago, 32 per cent forecast that it would strengthen. Managers continue to favour emerging markets equities, despite expectations that growth will weaken there. The survey finds that a net 28 per cent of regional fund managers expect China’s economy to weaken in the coming year, up from 15 per cent in March.
Dexia Tool Interactive
RBC Dexia Investor Services has launched 'Investment Analytics ‒ Interactive,' a web-based portfolio analysis tool. It enables RBC Dexia’s institutional clients to individually control portfolio analysis to assist them in making relevant, informed, and timely investment decisions.It givesclients the flexibility to create and customize their own portfolio insight using timely and comprehensive data.
Access Provided To Covered Call Strategy
Horizons Exchange Traded Funds Inc.’s ‘AlphaPro Enhanced Income Financials ETF’ offers access to a covered call strategy on Canada’s largest financial sector stocks. The investment objective of the exchange traded fund is to provide unitholders with exposure to the performance of an equally weighted portfolio of Canadian banking, finance, and financial services companies, and monthly distributions of dividend and call option income. It will invest primarily in a portfolio of equity and equity-related securities of Canadian companies that are primarily exposed to the Canadian banking, finance, and financial services sectors.
MacKay Mentors Benefits Team
Noel MacKay is group practice leader, group benefits consulting, at the Williamson Group. Prior to this appointment, he held the position of senior consultant, group benefits, working with clients to design their employee benefits plans. In this position, he will be responsible for managing and mentoring the employee benefits consulting team.
Rutten Joins Mackenzie
Onno Rutten is vice-president, investment management, at Mackenzie Financial Corporation. He has more than 14 years of natural resources experience. In his most recent position, he was a precious and base metals equity research analyst and executive director at a global financial services firm.
McInnes Cooper Lets Attendees Judge
McInnes Cooper will hold pension seminars in three Atlantic Canadian cities. Sessions will address current pension law issues and give attendees an opportunity to act as the judge in a real life pension case. As well, they can submit pension law questions to be answered. Sessions are set for Halifax, NS, on May 27; Saint John, NB, on June 2; and St. John’s, NL, on June 3. For more information, contact
Tuesday, May 17, 2011
New Brunswick Modernizes Common-law Definition
New Brunswick is modernizing the proposed definitions of common-law partners, including same sex couples, in its Pension Benefits Act, says a McInnes Cooper ‘Communication.’ Bill 16 amends legislation passed in 2008, but never proclaimed. It will promote harmonization between provinces by bringing New Brunswick into line with the legislation of other provinces in this area. Under Bill 16, in order to qualify as common-law partners, a plan member and a person not married to the member must have co-habited in a conjugal relationship continuously for at least two years immediately before the death of the member, the date of the breakdown of the common-law partnership, or the particular time under consideration in any other case. Plan sponsors will need to review their pension plan text for compliance with the proposed changes.
CPPIB Acquires Shopping Centres Stakes
The Canada Pension Plan Investment Board (CPPIB) has acquired holdings in a string of shopping centres in Germany and the U.S. It has taken a 50 per cent stake in German shopping and leisure centre CentrO Oberhausen and a 36.9 per cent interest in U.S. shopping mall owner the Mayflower partnership. CPPIB acquired the stake in CentrO Oberhausen from Stadium Group, who will retain its 50 per cent interest in CentrO and will continue to manage the shopping centre. CentrO is a 1.6 million-square-foot facility 40 kilometres north of Dusseldorf. The Mayflower partnership owns a portfolio consisting of 13 regional malls located in the U.S., mostly throughout the New England area.
Search Activity Higher This Year
Manager search activity increased globally in 2010 with emerging markets and alternative asset classes receiving most interest, says research by Mercer. In Canada, the ‘2010 Global Manager Search Trends’ report found search activity ran at higher levels than last year (147, up from 137), however asset placements have dropped from $6.7 billion to $4.3 billion. Defined Contribution accounted for most of the increase in searches, particularly within the traditional balanced, equity, and fixed income classes. Global/international equity remains the most popular category (47 searches), followed by Canadian equities (32) and balanced/multi-asset (27). Mercer advised on 940 searches across the world last year, up 14 per cent from 826 in 2009. It says this increase is a continuation of the strong rebound from 2008 (676 searches), when investors were busy focusing on strategic decisions following the financial crisis.
Institute Researching Workplace Wellness
The Sun Life Wellness Institute, in a partnership with the Richard Ivey School of Business, will conduct research on the return-on-investment of workplace wellness programs for Canadian employers. The institute is a health and wellness knowledge exchange for Canadian employers, providing evidence and insight that will help influence positive outcomes in the overall health and long term well-being of working Canadians. The partnership with the Ivey Business School is the first major study undertaken by the Sun Life Wellness Institute. The research will focus on the expected costs and individual and organizational outcomes of evidence-based workplace wellness programs.
Pension Funds Investment Suspended
The U.S. Treasury will suspend investment in two federal pension funds to free up borrowing capacity as the nation hits the $14.294-trillion legal limit on its debt. Investments in in the civil service retirement and disability fund and the government securities investment fund will be suspended to allow the government to issue $72 billion in bonds and notes which will push the nation up against its borrowing cap. Previous administrations have also suspended investment into the retirement funds to avoid breaching the debt limit, with the most recent suspension in 2006. Treasury must make the funds whole once the debt limit is raised.
Gains Modest For VC
Canadian venture capital (VC) market investment activity held on to the moderate gains of 2010, but failed to match growth in the United States, in large part because of the continued slow pace of fund-raising in the first quarter of 2011. This was one of several major findings by Canada’s Venture Capital & Private Equity Association (CVCA) and research partner Thomson Reuters. The data reveal that VC invested across Canada totalled $315 million between January and March, up marginally from $311 million invested in the same quarter last year. In contrast, deal-making in the United States rose more substantially. Disbursement levels totalled $6.1 billion in the American market in the first quarter of 2011, or 19 per cent more than the US$5.2 billion invested at the same time last year.
Desjardins Using Eagle System
Desjardins Asset Management, the investment management specialist of Desjardins Group, has implemented Eagle Investment Systems LLC’s ACCESS, a data management solution, for its asset management business. The key driver for deploying the platform was Eagle's commitment to collaborate with Desjardins to build out International Financial Reporting Standards (IFRS) requirements in support of Canadian and global financial reporting standards that have taken effect. Eagle introduced IFRS support in its software released in 2009 and it continues to add functionality to further address client needs for international financial reporting standards.
Pair Share CEO Post
Kristi Savacool, chief executive officer of benefits administration, and Baljit Dail, chief executive officer of consulting, will become co-chief executive officers of Aon Hewitt. As CEO of benefits administration, Savacool and her team deliver Defined Benefit, Defined Contribution, and health and welfare services to more than 22 million global participants. Dail, as CEO of consulting, leads a global consulting organization that provides health and benefits, talent and rewards, and retirement strategies and solutions to clients in more than 90 countries.
Monday, May 16, 2011
Pension Funds In TMX Acquisition Group
Maple Group Acquisition Corporation, a corporation formed by five of the country's largest pension funds and four Canadian bank-owned investment dealers, has submitted a proposal to the board of directors of TMX Group Inc. to acquire all of its issued and outstanding shares. Maple's investors include Alberta Investment Management Corporation, the Caisse de dépôt et placement du Québec, the Canada Pension Plan Investment Board, CIBC World Markets Inc., Fonds de solidarité des travailleurs du Québec, National Bank Financial Inc., the Ontario Teachers' Pension Plan Board, Scotia Capital Inc., and TD Securities Inc. Upon completion of the transaction, existing shareholders of TMX Group would own approximately 40 per cent of Maple's outstanding shares, the pension fund investors would own approximately 35 per cent, and the bank-owned investment dealers would own approximately 25 per cent. Maple believes its proposal will enable TMX Group to achieve the scale and efficiency it needs to be successful in an increasingly competitive marketplace, while continuing to develop its unique capacity for serving global resource companies, as well as Canada's vibrant venture, energy, and derivatives markets. The Maple transaction will preserve Canadian governance, decision-making, and regulatory oversight, and will position the company to pursue strategic opportunities internationally.
Alliance To Sustain Healthcare
The Conference Board of Canada has launched the Canadian Alliance for Sustainable Health Care (CASHC), a five-year, multi-million dollar initiative that seeks to improve the Canadian health system as a whole – as well as healthcare practices within firms and organizations. The work of CASHC will help Canadians to better understand the conditions for a sustainable healthcare system, which includes dimensions of financial sustainability, firm-level performance; and institutional factors. This involves looking at areas such as current and future healthcare spending, public and private investment and expenditures, and the relationship among health-related costs, workforce health, and firm performance. “The sustainability of the healthcare system is a priority for Canadian governments and for many organizations in both the private and public sectors,” says Anne Golden, president and chief executive officer. “Most Canadians understand that our public healthcare system is facing severe fiscal challenges and that reform is needed so that it will be effective, efficient, fair, and sustainable going forward.”
New Way Of Thinking Needed
Moving to a culture of health and wellness requires a new way of thinking, says Raymond J. Fabius, chief medical officer at Thomson Reuters. Speaking at the ‘Connex Employer Forum 2011’ on ‘Health Trends in the Workplace,’ he said thinking needs to move from medical management evolution to revolution. The old way of thinking considers medical costs to be variable and out of control, focuses on the 15 per cent that account for 85 per cent of the costs, and believes that attending to the healthcare needs of your workforce can make you an employer of choice. The new way of thinking believes medical costs can be managed and controlled and looks at it as an investment. It sees attending to the healthcare needs of your workforce as a way to get a competitive advantage.
Saskatchewan Changes Generic Prices
Saskatchewan’s changes to generic drug prices follow similar changes in most of the other provinces. However, the process in Saskatchewan is most similar to British Columbia since the change to generic drug prices was accomplished through negotiation, not legislation, says a Mercer ‘Communiqué.’ For private plans, the impact of the generic drug price reductions and dispensing fee increases will vary based on plan design differences and pharmacy agreements in place with different benefit managers and insurers. Under the proposals, the maximum price of most existing generic drugs will decrease to 45 per cent of the brand name drug by June 1, 2011, and 35 per cent of the brand name drug by April 1, 2012. The maximum price of new generic drugs that are introduced will initially be 40 per cent of the brand name drug and will be lowered to 35 per cent of the brand name drug by April 1, 2012. To recognize the impact of lost revenue to Saskatchewan pharmacists, the maximum dispensing fee was increased from $9.43 to $9.85 on May 1, 2011, and will be further increased to $10.25 in April 1, 2012. While it expects most pharmacists to increase their dispensing fees, plan sponsors may be able to mitigate the cost impact by introducing a dispensing fee limit.
The landscape for pension reform is filled with opportunities for progress in Canada, but to date it has remained relatively unchanged as legislations are still in their infancy stages, say Evan Howard and David Vincent, partners at Ogilvy Renault. They told attendees at its ‘Placing Pension Reform in Context’ seminar that today’s environment is a difficult one for employers to make significant plan design changes. As provincial and federal legislation continue to diverge, funding and administration costs grow and disclosure requirements create the potential for litigation. As well, little is being done to encourage employers to establish or maintain comprehensive pension plans.
Psychological Health Necessary For Productive Employment
Psychological health includes cognitive, interpersonal, and motivational skills that are necessary for productive and meaningful employment, says Merv Gilbert, a registered psychologist and principal partner at Gilbert Acton Consulting. In a session on ‘Workplace Stress and Resiliency’ at the ‘Connex Employer Forum 2011,’ he said depression and anxiety are the prevalent mental health conditions impacting the workplace. They hit individuals during their prime working years and increase the risk for illnesses, accidents, injuries, and, as a result, liability. In fact, they are the fastest rising causes of short-/long-term disability. The benefits of having psychologically healthy workplaces are numerous, starting with lower turnover and higher satisfaction. This, in turn, leads to better performance, productivity, recruitment and retention, and engagement.
Masih Joins BNY Mellon
Rumi Masih is a senior investment strategist in the investment strategy and solutions group at BNY Mellon Asset Management. He will utilize the firm’s proprietary research and analytics to help clients frame their asset allocation, risk management, and portfolio construction decisions. He was most recently with JP Morgan Asset Management where he was a managing director and global head of the strategic investment advisory group.
Woolf Moves To Aon Hewitt
Daphne Woolf is a senior vice-president in the Toronto, ON, office of Aon Hewitt. She will lead the national talent and engagement team, part of its talent, rewards, and communication practice. She has 30 years of experience in management and human resource consulting and for 17 of those years was a national partner with another large international human resource consulting firm where she specialized in the design, pricing, and implementation of insurance, benefits, and total compensation arrangements.
DB Opportunities Discussed
‘Emerging Opportunities and Challenges of DB Plans ‒ Beyond the Financials’ will be discussed at the ‘2011 Association of Canadian Pension Management National Conference.’ Jim Stanford, of the Canadian Auto Workers; and Steve Ashton, of IWK Health Centre; will explore the broader HR opportunities and challenges that accompany Defined Benefit plans in today's environment. It takes place September 13 to 16 in St. John’s, NL. For more information, visit www.acpm-acarr.com
Access To Liquidity Examined
Global exchange consolidation; an exploration of Canada’s regulatory framework in comparison to the U.S. and Europe; access to liquidity; and transaction cost analysis will be among the topics examined at the FPL Canadian Trading Conference 2011. The conference agenda is divided according to interests into business and technical streams. It takes place June 9 in Toronto, ON. For more information, visit
Friday, May 13, 2011
Formularies Hard To Communicate
Few Canadian employers are using formularies to manage drug costs, says Barb Martinez, of Mercer. She told a panel discussion ‘How Drug Plan Formulary Decisions Are Made’ at Connex Health’s ‘9th Annual Employer Forum’ about 95 per cent do not use them mostly because they are not easy to communicate. Instead, they turn to measures such co-pays. These are easier to communicate and can result in significant savings on drug costs. And, while most employers cover 100 per cent of everything, this needs to change because the current system is not sustainable. Healthcare costs account for 45 per cent of benefit costs and are increasing by 10 to 12 per cent each year. Of the healthcare costs, drugs account for 65 per cent.
U.S. Plans Shift To Derisking
U.S. corporate pension plans are shifting their assets into derisking liability-matching strategies to reduce volatility, mostly at the expense of domestic equity allocations, says a survey by Aon Hewitt. Among derisking strategies, the ‘dark horse’ strategy of dynamic investment policies has surpassed liability-driven investing, says ‘Global Pension Risk Survey 2011.’ By 2010, 21 per cent of plan executives surveyed had already adopted some form of dynamic investment policy, up from 15 per cent in 2009. In 2011, 29 per cent of sponsors expect to use a form of dynamic investment policy.
Accommodative Culture Needed
Early and appropriate therapy, and workplace accommodations can mitigate chronic disease management costs, says Adrian Ebrahimi, manager, Canadian benefits at TD Bank. Speaking at Connex Health’s ‘9th Annual Employer Forum’ on ‘Managing Chronic Disease,’ he defined chronic disease as any disease that lasts three months and is not cured by medical treatment. Examples can include arthritis, asthma, and mental illness. One key for employers is to create an accommodative culture in the workplace designed to keep employees from first, being absent, and later going on short-term or long-term disability. It could be as simple as allowing a diabetic breaks throughout the day to monitor their blood/sugar levels or giving an employee a couple of hours off each week to attend medical appointments. If more serious accommodations are required, they need to work with their disability manager who can determine if there is a medical condition and if they are getting optimal treatment. However, he said employers do need to be flexible as making simple accommodations or accommodations on the advice of a disability manager may be less expensive in the long term than having the employee off work for an extended period of time.
Food Workers Select RBC Dexia
RBC Dexia Investor Services has been appointed by the United Food and Commercial Workers Pension Plan to provide custody and benefit payment services for its multi-employer pension plan. With more than 36,000 members, represented by UFCW Local 1518 and Local 247, it is one of British Columbia's largest private sector multi-employer unions.
Incapacity Dominates Discussion
Incapacity dominates the discussion around disability management, says Stephen Bevan, managing director of the Work Foundation in the UK. In the session ‘Fit for Work: Addressing Musculoskeletal Disorders’ at Connex Health’s ‘9th Annual Employer Forum,’ he said that needs to be flipped over. A more positive approach is looking at what the disabled can do, not what they can’t. Employers will encounter more and more employees with disabilities as the aging population means people will be working longer and may also develop conditions which could keep them from working. Early identification and intervention can reduce the impact of this. Not only is it cost effective, but the time to intervene is when they are still working as it is easier to keep them at work than to get them back to work. Unfortunately, not enough resources are devoted to preventive measures. Government agencies don’t always take into account the wider societal benefits when considering health technology benefits and short-term medical care matches four and five years terms in political office, unlike preventive measures which can take 15 years or more to show results.
Emerging Manager Workshops Offered
AIMA Canada is offering a series of four ‘New and Emerging Managers Workshops.’ They will cover topics ranging from doing business outside of Canada to operational and compliance considerations. The first session, starting a hedge fund business, takes place June 2 in Toronto, ON. For more information, visit http://www.aima-canada.org/
Panel Discusses Shareholder Democracy
‘Shareholder Democracy: Good, Bad or Unimportant?’ will be the focus of a roundtable discussion featuring institutional investors, issuers, academics, regulators, and advisors. It will be moderated by Poonam Puri, co-director of the Hennick Centre for Business and Law and director of research and policy at the Capital Markets Institute, Rotman School of Business, University of Toronto. The Canadian Coalition of Good Governance, Hennick Centre for Business and Law (a joint initiative of Osgoode Hall Law School and the Schulich School of Business at York University), and the Institutional Investor Educational Foundation event takes place May 26 in Toronto, ON. For more information, call (416) 868-3576 or eMail firstname.lastname@example.org
Thursday, May 12, 2011
Tough Questions Needed About Drug Plans
Canadian companies should ask some tough questions and take a closer look at the way their employee drug plans are being managed or risk further benefit cuts, cost increases, and even impacts to their own product or service pricing, says a white paper by Helen Stevenson, president and CEO of Reformulary Group Inc. and former executive officer of Ontario Public Drug Programs and assistant deputy minister at the Ontario Ministry of Health and Long-Term Care. ‘An End to Blank Cheques: Getting more value out of employer drug plans’ addresses the issue of soaring prescription drug costs and the economic impact on plan sponsors, employees, and retirees. It says private sector spending on prescription drugs (both employer plans and consumers paying out-of-pocket) reached an estimated $14 billion in 2009, representing an annual growth rate of seven per cent. Meanwhile, public sector spending on prescribed drugs reached $11.4 billion for the same period, representing an annual growth rate of only four per cent. To tackle the issue and control drug plan costs, Stevenson says plan sponsors must clarify the purpose of the drug benefit plan; have the right information to make decisions; better manage formularies; promote and educate employees about the appropriate use of generic and brand drugs; build buying power; drive consumerism; and reinvest savings back into benefits. “Prescription drug costs can be managed, but changes need to be made,” she says. “If nothing is done, the steady rise in the cost of these plans will continue and may even lead to dire consequences.”
Retirement Security Shared Responsibility
"What is generally agreed upon is that retirement income security is a shared responsibility between the government, society, employers, and individuals. What is difficult to determine is what the different levels of responsibility are or should be, how they interact or should interact with each other, and, based on that, the optimal means of improving retirement income adequacy," says Jean-Claude Ménard, chief actuary, Office of the Chief Actuary, OSFI. He told the colloquium on ‘Issues for Public Retirement Systems’ that the Canadian retirement income system, in its present form, is efficient since it provides diversity of income through a mix of private and public pensions. The system also provides diversification of funding approaches that allows it to adapt to changing demographic and economic conditions. This results in a reasonable cost of public pensions, a low poverty rate for seniors, and a reduction in income inequalities, he says. However, “even if the Canadian retirement system compares favourably with those of other countries, it could always be improved,” he said.
Customized Form Use Questionable
Employers should examine their use of customized administration forms as a result of an Ontario Court of Appeal decision in Smith versus Casco Inc., says a Heenan Blaikie ‘Pension Pulse.’ The case concerned the use of a pension benefit waiver form that had been designed by the employer. In this case, the plan member decided to retire and in advance of doing so, selected a pension option election on the form for a five-year guarantee of pension payments, with no lifetime survivor pension to his spouse in the event he predeceased her. Unfortunately, the plan member died three years after retirement, leaving only two years of pension payments for his surviving spouse. The court reviewed the customized form, compared it with the prescribed Pension Benefits Act form, and concluded that the differences affected the substance of the form. As well, there were other inconsistencies and it held that these changes affected the substance of the prescribed form. The customized form was, therefore, not valid or binding. This decision shows that prescribed forms should be used and ambiguities between a prescribed form and a customized form will be resolved in favour of the plan member and surviving spouse.
Arrow Hedge Now Arrow Capital
To strengthen its goal of offering leading investment products globally, Arrow Hedge Partners is expanding its presence in the UK through a new firm, Generation Asset Management (G2AM). The move co-incides with a full corporate rebrand. After 10 years as Arrow Hedge, the Canadian fund manager is changing its name to Arrow Capital Management (Arrow). The firm was founded in 1999 by Jim McGovern, former CEO and co-founder of BPI Financial Corporation. It now manages more than $1.2 billion.
State Street Provides Services
State Street Corporation will provide investment services for Manulife Asset Management Limited’s pooled funds and real estate funds. It will provide custody, investment accounting, financial reporting, transfer agency, and recordkeeping for the 26 pooled funds as well as two real estate funds. The assets managed total $2.2 billion.
Meter Shows DB Plans Closing
Sixty-four per cent of U.S. corporate Defined Benefit plans are either closed or are being closed, says SEI’s ‘Pension Lifecycle Meter.’ It found that only 36 per cent are ‘active’ and open to new hires. However, 31 per cent are closed to new entrants, but participants are still accruing benefits; 30 per cent are ‘frozen,’ closed to new entrants and participants are no longer accruing benefits, although the termination process has not started; and three per cent are ‘terminating.’
Education Impacts Health Coverage
A clear correlation exists between changes in the percentage of workers with health coverage through their own job and level of education, says the Employee Benefit Research Institute. It found workers with a high school education or less experienced a statistically significant decline in the likelihood of having health coverage, while those with higher levels of education did not. It says this shows that during a recession, some employers will drop coverage, some will increase the worker share of the premium, and some may change eligibility requirements. Structural changes in the economy during a recession, such as the substitution of part-time workers for full-time workers, reduce the number of workers eligible for health benefits.
Balance Nears $75,000
The average 401(k) balance in the U.S. rose to $74,900 at the end of the first quarter, marking an all-time high since Fidelity Investments began tracking account balances in 1998. This represents a nearly 12 per cent increase from a year ago and a 58 per cent jump from the same time period in 2009. In addition, nearly one in 10 participants increased his or her deferral rate during the first quarter, the largest percentage taking such action since Fidelity started tracking the figure.
Wednesday, May 11, 2011
Teachers’ Discusses TD MLSE Share
The Ontario Teachers' Pension Plan is in advanced discussions with TD Capital Group and has reached an understanding on the principal financial terms regarding the acquisition of TD Capital Group's 13.46 per cent minority share of Maple Leaf Sports and Entertainment (MLSE). Subject to the requirements of the MLSE shareholders' agreement, its interest in MLSE could increase to between 76.35 per cent and 79.53 per cent. Teachers' is currently working with its advisors to explore strategic alternatives regarding its ownership of MLSE. The consolidated stake in MLSE is expected to streamline the process.
Group Benefits, There’s An App For That
Sun Life Financial will offer a free mobile application for group benefits and group retirement and savings plan members. For group benefits plan members, the app allows them to submit medical and dental claims from their smartphones for instant processing. Plan members will be able to submit claims anywhere, anytime ‒ even at point of sale ‒ and could have their money deposited into their bank accounts within 24 to 48 hours. Plan members will also be able to view the details of their submitted claims, even those submitted in paper through the mail, and have access to benefit tools including their drug and travel protection cards. Along with the group benefits capabilities, group retirement and savings plan members can check their plan balances and recent contributions right from their phones. The app is scheduled to be available later this summer.
Canadians Get 24/7 Healthcare Access
Desjardins Financial Security (DFS) is giving Canadians 24/7 access to the information they need on treatment options for specific illnesses, services available in their areas, and healthcare system wait times, as well as other health-related reference material and guides. The Health is Cool 360° platform, developed by Novus Health, is available to eligible DFS group insurance plan members. This tool encourages plan members to become more proactive about their health. Nathalie Laporte, vice-president, product development and marketing, group and business insurance, says it “makes it easier to take a preventive approach to your healthcare. It also helps employers manage the costs associated with health problems and absenteeism.”
Macorin Heads Canadian Business
Claude Macorin is managing director of Rogerscasey Canada. He has more than 20 years of investment-related experience, most recently as managing director, investments, at the University of Guelph’s office of investment management where he was responsible for all aspects of the University’s pension and endowment investments including investment policy, asset mix, risk management, and manager searches/due diligence. Prior to that, he was a portfolio manager at McGill University, pension investments, responsible for managing a Canadian equity portfolio, real estate, and private equity/infrastructure. Now, he will be primarily focused on servicing and developing the firm’s Canadian institutional business.
Tuesday, May 10, 2011
Sponsors Corporation Wants To Improve Funded Position
The OMERS Sponsors Corporation hopes to improve the funded position of the Retirement Compensation Arrangement and improve pension benefits and access to improved pension benefits for emergency services employees. Jordan Fremont, writing in a Hicks Morley ‘FTR Now,’ says it is proposing seven changes to the OMERS pension plans. He says many of the proposed changes will be controversial and have potentially significant implications for OMERS participating employers and their employees. For example, the proposal to enhance RCA funding by increasing RCA based contribution rates would increase contribution rates, but only on those earnings that exceed the level above which benefits are provided under the RCA. Since the RCA applies only to members who earn incomes over and above the Income Tax Act (Canada) maximum retirement benefit limit of $143,912, based on the existing OMERS’ benefit formula, this proposed change would require increased contributions from members who earn incomes above this amount and their employers. Employers should notify the sponsor corporation of any concerns prior to May 26.
Pension Plan Membership Grows Slightly
Membership in registered pension plans (RPPs) in Canada edged up 0.2 per cent in 2009 to more than six million, says Statistics Canada. This was the slowest rate of growth in four years. The entire increase came from the public sector, where membership rose 2.6 per cent to just over three million. As a result, for the first time, membership in the public sector accounted for more than half (50.2 per cent) of the total membership in RPPs. A decade ago, public sector plans represented 46 per cent of total membership. In the private sector, the number of members fell 2.1 per cent to just under three million. About 4.5 million people, or 75 per cent of those with a RPP, were in a Defined Benefit pension plan, a 0.5 per cent increase. The rate of participation in these plans has declined constantly from more than 85 per cent a decade earlier. Membership in the other most frequent type of plan, Defined Contribution, increased 2.4 per cent to just over 961,000. This type has gained in popularity over the years and accounted for 16 per cent of all RPP membership as of January 1, 2010. More than 85 per cent of DC members are in the private sector. Membership in hybrid and combination pension plans accounted for nine per cent of total membership.
Retirees Object To Survivor Rules
Dozens of human rights applications have been filed against the Ontario Teachers’ Pension Plan Board for denying full survivor pensions to those who marry after they retire. The applications were filed by more than 80 retired educators, their widows, and widowers. Also named are the Ontario Ministry of Education and the Ontario Teachers’ Federation, who are co-sponsors of the pension plan. While all teachers may pay into the plan, not all are able to extend survivor benefits to their spouses. Current OTPP rules only provide a survivor pension to a spouse who was already married to the pension plan member when they retired. If a pensioner marries after retirement, he or she must take a permanent pension reduction in order to obtain a survivor’s pension for his or her spouse. The reduced pension is permanent, even if the plan member outlives the spouse that he or she married.
Ancillary Benefits Can Lower Costs
As the cost of providing employee benefits continues to rise, employers are looking to add comprehensive ancillary programs to plans. Sandra Ventin, a consultant at Pal Benefits Inc., told a 'Fundamentals of Group Benefits' seminar sponsored by the Toronto Area Chapter of the International Society of Certified Employee Benefit Specialists (ISCEBS) that according to Toronto Board of Trade 2010 statistics, 75 per cent of employers report an increase in benefits costs. Adding ancillary options to a core benefits program ‒ with employment assistance programs such as health coaching, critical illness, and financial planning ‒ can help create a physically and mentally healthier workforce and, in turn, lower company costs associated with lost productivity and medical expenses.
Journal Looks At Pension Design
Pension design, governance, and executive compensation are the themes of the Spring 2011 issue of the ‘Rotman International Journal of Pension Management.’ The lead article, ‘Recasting Executive Compensation: From Gamesmanship to Authenticity,’ is an excerpt from ‘Fixing the Game: Bubbles, Crashes, and What Capitalism Can Learn from the NFL,’ a new book by Roger Martin, dean of the Rotman School. Other articles include ‘Pension Funds as Universal Owners: Opportunity Beckons and Leadership Calls,’ by Roger Urwin, of Towers Watson; ‘How Green is Your Property Portfolio? The Global Real Estate Sustainability Benchmark’by Rob Bauer, Piet Eichholtz, and Nils Kok, of Maastricht University; and John M. Quigley, of the University of California, Berkeley; and ‘Why the Design of Maturing Defined Benefit Plans Needs Rethinking’ by Theo Kocken, of Cardano Risk Management. The articles are at www.rotman.utoronto.ca/icpm
Good Governance Eliminates Plan Vulnerability
At a time when historically low interest rates and volatile fund returns are hurting all pension plans, administering a well-defined governance structure is imperative to protect sponsors and members. Speaking at the 'Fundamentals of Pensions' seminar sponsored by the Toronto Area Chapter of the International Society of Certified Employee Benefit Specialists (ISCEBS), Cindy Rynne, a consulting actuary, and Amanda Cullity, director of retirement services at Buck Consultants, said plan sponsors need to instil best practices in order to properly document and communicate plans to members, and minimize negative employer perceptions and fiduciary liability.
Spotlight Put On Brazil
A ‘’Spotlight on Private Equity & Venture Capital in Brazil’ will be a luncheon session at the ‘CVCA 2011 Annual Conference.’ Sidney Chameh, chairman, ABVCAP founder, and partner, DGF Investimentos; and Martin Pose, a partner at TozziniFreire Advogados; will provide an overview on gaining exposure to LPs and GPs in the Brazilian private capital landscape. It takes place May 25 to 27 in Vancouver, BC. For more information, visit http://www.cvca.ca/print/news/events
Summit Covers Fiduciary Litigation
The ‘National Summit on the Future of Fiduciary Responsibility’ will cover the most critical litigation issues facing the industry including assessing the role of shareholders and institutional investors in corporate governance reform measures; understanding the best examples of activism that resulted from the financial crisis; and examining mortgage-backed securities litigation. The Responsible-Investor.com and American Conference Institute event takes place June 9 and10 in New York City, NY. For more information, visit http://www.americanconference.com/Fiduciary
Monday, May 9, 2011
Ontario Changing Transfer Option
A proposed amendment to Ontario's Pension Benefits Act removes the requirement for a pension plan to allow former members to transfer the commuted value of their pension to purchase a life annuity from an insurance company, says an Eckler ‘Special Notice.’ The amendment would only apply to transfers of commuted values elected by former members of the plan and only if the sponsor has appropriately amended their plan. This amendment does not remove the right of an administrator to purchase an annuity at any time in order to remove certain risks from the plan. It will not apply to plans undergoing a full or partial windup. For these cases, the old rules will apply (plan administrators will be required to purchase annuities for former members in a full windup situation). Sponsors should review the plan’s termination options and decide if they wish to continue to offer individual annuity purchases by former members. If they wish to implement this amendment, sponsors may have to change the plan provisions regarding transfer options, change their administration forms, and make adjustments to their member communication materials.
Amendments In Force July 1
Amendments to the Pension Benefits Standards Act, 1985, (PBSA) contained in Bill C-9 will come into force July 1, says the pension and benefits group of Borden Ladner Gervais LLP. These amendments include provisions that provide for immediate vesting and extend the 50 per cent rule to pre-1987 member contributions. The immediate vesting provision removes the requirement for two years of continuous service. Under the current federal pension legislation, the rule that member contributions of a member must not constitute more than 50 per cent of the member’s pension benefit applies to only member contributions made after December 31, 1986, although a plan can extend the application to contributions made on or before that date. When the change comes into force, this rule applies to all member contributions, whether they are made before or after December 31, 1986. These amendments apply to federally-regulated pension plans.
Caisse Adds Pair
Paul Fenton is chief economist and Yanick Desnoyers is deputy chief economist at the Caisse de dépôt et placement du Québec. Until recently, Fenton was chief of the Canadian economic analysis department of the Bank of Canada, which he joined in 1979. Desnoyers was assistant chief economist at National Bank Financial Group and senior economist at the Bank of Canada.
Session Looks At Generic Pricing
‘Why Generic Drug Pricing Legislation Is Not Enough’ will explore what has taken place inside private sector drug plans before and after changes to generic drug pricing legislation across the country. Mike Sullivan, president of Cubic Health, will share the results of research on a set of tens of millions of drug claims in Canada over the past two years and the implication of these research findings for plan sponsors. The Connex Health Benefits Breakfast Club event takes place June 9 in Burlington, ON. For more information, visit www.connexhc.com
Acupuncture Symposium Examines Evidence
Private health insurers; third-party claim payers; employee benefits advisors; HR, compensation, and benefits practitioners are invited to a complimentary symposium to learn more about the practice of acupuncture in Ontario. The session will look at the latest evidence on the efficacy of acupuncture and the regulatory environment and who is qualified to perform acupuncture in Ontario. It takes place June 9 on Toronto, ON. For more information, contact, Krystyn Firka at email@example.com or at 416-860-7182
Friday, May 6, 2011
Drug Spending Growth Slows
Although drugs remain an important cost driver in Canada's health system, growth in spending has slowed to its lowest rate in 14 years, says the Canadian Institute for Health Information (CIHI). ‘Drug Expenditure in Canada, 1985 to 2010’ estimates the total drug expenditure reached $31.1 billion in 2010, an increase of $1.4 billion, or 4.8 per cent since 2009. In comparison, the average annual growth rate in drug spending was nearly twice as high between 2000 and 2005, at 8.9 per cent. "Spending on drugs used to be the fastest growing category of health spending in Canada, but has slowed down considerably over the past five years," says Michael Hunt, CIHI's director of pharmaceuticals and health workforce information services. "Consumers have been hearing lately that a number of blockbuster brand name drugs ‒ including some used to treat high cholesterol and hypertension ‒ have just come off patent, allowing for lower-priced, generic alternatives to enter the marketplace. The implementation of generic pricing policies by some provincial drug programs may also be contributing to the slowdown in growth."
SRI Weathers Crisis
Socially responsible investment (SRI) in Canada has weathered the turmoil of the international financial crisis, and continues to represent about one-fifth of assets under management in Canada, says the ‘Canadian Socially Responsible Investment Review 2010.’ Its survey of assets shows that for June 2010, assets managed under SRI guidelines in Canada were $530.9 billion. The Social Investment Organization (SIO), which compiled the report, estimates this represents about 19 per cent of the total assets of the pension industry, the asset management industry and the mutual fund industry. "SRI has shown resilience in the face of tough times brought about by the financial crisis of 2008," says Eugene Ellmen, executive director of the SIO. To see the report, click here.
Crestpoint Acquires Shopping Centres
Crestpoint Real Estate Investments Ltd. (Crestpoint), a business dedicated to providing institutional and high net-worth investors with direct access to commercial real estate assets, has acquired two Quebec-based shopping centres. Located in t St. Eustache in the greater Montreal area, Carrefour Grande-Côte and Centre 25E comprise more than 98,000 square feet of retail leasing space. Carrefour Grande-Côte is anchored with tenants such as Maxi (Loblaws) and Pharmaprix (Shoppers Drug Mart). Centre 25E, a fully leased strip plaza that includes Dollarama, M&M Meats, and Global Pet Food amongst its tenants.
Legislator Pension Review Committee Named
The three-member panel to review the pensions of the members of the legislative assembly in Nova Scotia has been revealed. Retired Supreme Court Justice David Gruchy will serve as chair and he will be joined by John Morash, a former chairman of the Nova Scotia Utility and Review Board; and Ron Smith, past senior vice-president and chief financial officer of energy company Emera; to complete the independent panel. It will examine all aspects of MLA pensions and other retirement benefits including the plans already in effect, their effectiveness, and the cost of administration. It is expected to file its report within six months. However, its recommendations are not binding on the government.
Decisions Emphasize Need To Use Spousal Waiver
Two recent judicial decisions, King versus King, a decision of the Ontario Supreme Court; and Tower Estate versus Tower Estate; a decision of the New Brunswick Queen's Bench; emphasize the need to use the forms prescribed under pension legislation for the release by a member's divorced or separated spouse of claims to a survivor pension or a death benefit, says Priscilla Healy, of Folger, Rubinoff LLP. In both cases the non-member spouse had signed a separation agreement relinquishing rights to the member's pension plan, but had not signed the prescribed spousal waiver. In both cases, the court found the non-member spouse to be entitled to the survivor benefits. The decisions indicate that general language and even language referring specifically to the pension plan in a separation agreement, may well not be sufficient to extinguish a spousal claim to survivor benefits. Moreover, it may be difficult to establish a constructive trust for the other claimants on the basis of unjust enrichment. She warns that lawyers drafting separation agreements should provide a signed spousal waiver in the form that is prescribed under applicable pension legislation. Pension plan administrators should also be aware of these decisions, and others relating to the use of prescribed forms, to avoid making payments that might be challenged.
Citi Adds SRI Solutions To Securities Lending
Citi has added socially responsible investment solutions to its securities lending cash collateral investment program. Securities lending clients will now be able to elect to invest cash collateral under socially responsible investment (SRI) principles that consider environment, social, and governance (ESG) factors. According to Eurosif, as of 31 December 2010, more than $11 trillion of assets are managed globally in strategies of socially responsible investing. Without an SRI capability for the investment of cash collateral, firms that manage SRI strategies have found it difficult to participate in securities lending programs. Citi’s solution was developed in partnership with Sustainalytics, an ESG research firm.
Sickness Absence Trending Down
Absences due to sickness are on a downward trend in the UK, says a survey by the Engineering Employees Federation and Westfield Health, a UK health insurance provider. ‘The EEF/Westfield Health 2011 Sickness Absence Survey’ shows that from 2007 to 2010 there has been a steady fall in sickness absence, with the average employee taking five days sickness in 2010 compared to 6.7 days in 2007. An all-time high of 45 per cent of employees took no days off through sickness in 2010. The survey suggests this shows a clear correlation between those companies with strategies in place to train managers in sickness absence and tougher absence targets, with falling absence rates.
Investors Somewhat Unsettled
A slight shift towards greater concern about retirement is an indication that Canadian investors are feeling somewhat unsettled by recent global events, says the ‘Russell Financial Health Index.’ It shows the overall financial health of Canadian investors decreased to 48.1 in the first quarter of 2011 from 51.12 in the first quarter in 2010. However, this number is only marginally down from the last three months of 2010, when the index was at 48.51. “We are encouraged that much of the global economy continues to transition from recovery to expansion, and we are seeing increasingly stronger fundamentals,” says Keith Pangretitsch, director of national sales at Russell Investments Canada. “Nonetheless, recent Black Swan Events, such as Japan’s earthquake and nuclear crisis, as well as the ongoing crisis in the Middle East, seem to be giving some Canadians pause.”
CPP Actuarial Report Assumptions Reasonable
The work of the Office of the Chief Actuary (OCA) of Canada on the‘25th Actuarial Report on the Canada Pension Plan (CPP)’ meets all professional standards of practice and statutory requirements, says an external peer review panel commissioned to review the report. It found that the assumptions used, both individually and in the aggregate, are within a reasonable range and in accordance with the Canadian Institute of Actuaries’ standard. The panel did provide 15 recommendations on various aspects of the reporting in areas such as data, methodology, assumptions, and communication of results.
Chapter Offers Fundamentals Program
The South Western Ontario Chapter of the International Society of Certified Employee Benefits Specialists will be hold a one-day ‘Fundamentals of Pensions and Group Benefits’ session. Individuals new to the human resources role or to the pension and benefits world are encouraged to sign up. They can select the topic of their choice from two streams of learning. It takes place May 17 in Waterloo, ON. For more information, visit http://www.swo-iscebs.org/event2.htm
Fabius Speaks At Connex Forum
Insights into prominent diseases affecting employees and benefit costs and how to address the psycho social environment in the workplace will be among the sessions at the ‘Connex Forum on Employee Health.’ Featured speaker is Dr. Raymond Fabius, chief medical officer, Thomson Reuters in Philadelphia, PA; and author of ‘Population Health: Creating Cultures of Wellness.’ This year’s event will include a pre-conference workshop where participants will learn about tools to assess the psychological health of their workplace. It takes place May 11 to 13 in Niagara Falls, ON. For more information, visit www.connexhc.com
Thursday, May 5, 2011
Only 24 Per Cent Have Wellness Strategy
While 96 per cent of Canadian employers have wellness initiatives or plan to introduce them, only 24 per cent have fully implemented wellness strategies, says ‘WORKING WELL: A Global Survey of Health Promotion and Workplace Wellness Strategies.’ The Buck Consultants, A Xerox Company survey found that fewer than one in four workplace wellness programs in Canada have a strategy with multi-year goals and a documented approach to evaluate results. Stress continues to be the top health driver of Canadian wellness programs. Improving productivity, reducing absence, and improving workforce morale and engagement are the most important objectives for these programs. “With stress as the top health risk being addressed by wellness programs, employers should be focusing on improving their work environment,” says Michele Bossi, its health and productivity leader in Canada. “Workplace stress is a growing issue and employers that focus their wellness efforts on creating a healthier work environment will be more successful at improving workforce morale and engagement.” Among Canadian respondents, only 30 per cent indicate that they have measured any specific outcomes from their wellness programs. This compares to 37 per cent of global respondents that have measured their outcomes.
SSQ Goes Mobile
SSQ Financial Group now offers a mobile application. SSQ Mobile Services allows insureds to submit a group insurance claim using smartphones such as iPhonesor Androids. In addition to being able to submit a claim directly from a mobile device, the application allows users to consult a summary of their last claim payments, consult an electronic version of their SSQ insurance card, and contact SSQ Financial Group with a single click.
Bond Market Repressed
U.S. treasuries and the bond market are being repressed, capped, or simply overvalued compared to the previous 30 years, says Bill Gross, PIMCO’s managing director. He says treasuries will continue to short-change investors even after the end of QE2 stimulus in June. “We have warned for several years of the deteriorating creditworthiness of America’s AAA rating, our de minimis treasury positions had less to do with much more immediate issues than America’s balance sheet prospects. We are highly sensitive to the pocket-picking policies that governments in general deploy to right the ship.” Urging investors to “revolt” against the U.S. government by ditching treasuries, he is urging investors to look globally for better yield opportunities. They need to look to emerging market debt as low rates and rising inflation present an immediate threat to portfolios and treasuries are set to be "overvalued for decades."
Managers Opt For Safety
Geopolitical unrest and the earthquake in Japan dominated the news headlines during the first quarter of 2011 leading to a flight to safety, which benefitted investment managers who were more defensively positioned, says the ‘Russell Active Manager Report.’ It found that 59 per cent of Canadian large cap value managers beat the S&P/TSX Composite Index’s return of 5.6 per cent in the first quarter of 2011 compared with just 22 per cent of growth managers. The data is even more striking when compared to the fourth quarter of 2010 when 45 per cent of value managers and 74 per cent of growth managers beat the index. Dividend-focused investment managers also performed well in the quarter with 55 per cent beating the benchmark.
Platform Rebalances Target Date Funds
J.P. Morgan Worldwide Securities Services has launched CARS, a market-leading automated platform for daily cash allocation and rebalancing of target date funds – both custom and open architecture ‒ and other complex fund of fund structures. It allows clients to implement a unique allocation strategy (glide path) with any configuration of underlying investments. The platform is scalable and secure with configurable parameters that enable efficient administration and embedded system controls.
Balanced Funds Have Positive Start
Balanced pooled funds in the UK had a positive start to 2011, albeit a small one, says BNY Mellon Asset Servicing. The first quarter 2011 return for balanced pooled funds was 0.8 per cent, while the yearly return was stronger standing at 7.8 per cent. This is the third consecutive positive quarter for the balanced sector. Seven out of the last eight quarters have been positive. UK equity managers also started 2011 on a positive note with a return of one per cent for the quarter which also matched its index, the FTSE All-Share. The 12-month figure was 10.3 per cent, which outperformed its index return of 8.7 per cent.
AGF Adds Two
Chris Boyle is senior vice-president at AGF Management Limited. He will be responsible for expanding and managing the firm’s institutional business, which now represents almost half of its assets under management. Most recently, he was a senior vice-president at a Canadian investment management firm, where he oversaw the institutional sales and marketing division. Chris Jackson is chief information officer. Most recently, he was president of Canadian operations at Belzberg Technologies. He will focus on enhancing its operational performance and strengthening its information technology infrastructure, particularly on the institutional front.
Wednesday, May 4, 2011
Report Scrutinizes Derivatives Markets Stability
A C.D. Howe Institute report scrutinizes managing the risk of default in securities or financial derivatives markets through central counterparties to improve the stability and resilience of the global financial system. In ‘Time for Stability in Derivatives Markets – a New Look at Central Counterparty Clearing for Securities Markets,’ Thorsten V. Koeppl, of Queen’s University, examines the role centralized clearing parties could play in improving system resilience. These centralized clearing parties, he says, are institutions that interpose themselves between counterparties in financial transactions. He offers a new look at what these institutions could achieve in over-the-counter derivatives trading and short-term funding markets. He places the emphasis on the core services they could provide ‒ the diversification of counterparty risk and the redistribution of default losses among its members. The study is at http://www.cdhowe.org/pdf/Commentary_329.pdf
OMERS Acquires Husky Stake
Berkshire Partners LLC, a Boston-based private equity firm, and OMERS Private Equity Inc., the private equity arm of the OMERS Worldwide group of companies, have jointly acquired Husky International Ltd. and its subsidiaries from Onex Corporation and its affiliated funds. Husky is a global supplier of injection molding equipment and services to the plastics industry. It has more than 40 service and sales offices supporting customers in more than 100 countries, and manufacturing facilities in Canada, the United States, Luxembourg, and China. The management team of Husky is expected to be a significant investor in the business through continued equity ownership.
HR Strategies Establishes SARA Fund
HR Strategies has established the Fonds Stratégique à Rendements Absolu HRS (SARA Fund), which will invest its assets with Québec absolute return managers. The fund will be available to Québec and Canadian investors. HR Strategies will act as general partner of the fund. The main investors are the Caisse de dépôt et placement du Québec, Fondaction, Fonds de solidarité FTQ, and the Régime de retraite de la CSN. The fund will rely on fundamental analysis to select managers, based on their expertise, reputation, and rigour.
Growth Forecast For Private Equity
Both North America and Europe are expected to see significant growth in their domestic private equity markets, says the ‘Transatlantic Private Equity’ survey conducted by mergermarket and Duff & Phelps.
It found private equity groups are entering the next 12 months with renewed confidence and high expectations. When asked about their targeted returns for the upcoming one to two years, three-quarters of European respondents will aim for 15 per cent to 25 per cent and more than half of North American respondents plan for returns 20 per cent or greater. The survey is at http://www.mergermarket.com/pdf
Inflation-linked Asset Allocations Increasing
Approximately 80 per cent of European pension schemes will increase their allocations to inflation-linked and inflation-sensitive assets as quantitative easing and government stimulus program create inflation anxiety, says a survey of Defined Benefit pension plans by Mercer. It also found low yields on government bonds are strengthening the trend toward alternative debt markets, including distressed and mezzanine debt, as well as high yield and emerging market debt. It says 18 per cent of pension schemes concerned about inflation intend to increase their allocation to inflation-linked bonds, five per cent to inflation-sensitive assets, and three per cent to inflation swaps. Within the remaining 12 per cent, many, reluctant to invest at current market levels, have instead set up monitoring processes that will enable them to increase their exposure.
Inflation Or Deflation Debated
‘Inflation or Deflation: Which Risk Should You Prepare For?’ is the topic of this year’s AIMA-Canada debate. This year’s speakers are Hubert Marleau, co-founder of Palos Management, who will argue for an inflationary future and how to protect against it; and Derek Holt, vice-president of Scotia Capital Economics, who will take the deflation view. It takes place May 25 in Toronto, ON. For more information, visit www.aima-canada.org
Tuesday, May 3, 2011
Active Allocations Increasing
Active Institutional investors globally plan to maintain or increase their allocations to active strategies, but they still are putting money into passive management, says a survey by Janus Capital Management LLC. It found 72 per cent of respondents maintained or increased active management over the past two years and 81 per cent will maintain or increase it in the future. Plans intending to increase their active allocation cited confidence in active managers' risk management, the need to generate alpha, improved market conditions, the need to meet plan return assumptions, and plan reallocations as the reasons. Plans intending to decrease active exposure cited high fees, disappointment with active management, concerns with risk management, and underperformance as the reasons. It also found 70.3 per cent view their passive allocation as a complement to the active portion of their portfolio.
Drug Cost Up Marginally
An IMS Brogan report found pharmaceutical drugs purchased by Canadian pharmacies and hospitals grew by only 1.4 per cent in 2010 compared with 6.3 per cent in 2009, says an Eckler ‘GroupNews.’ This is the lowest growth rate recorded for the Canadian pharmaceutical industry in more than 30 years. The factors contributing to the Canadian market’s slower sales growth include patent expirations for several drugs including Lipitor, Actonel, and Proscar. It also reports that the use of generic products in Canada continued to rise last year. They dominated the market for the third consecutive year with 57.1 per cent of total market share, up from 54.3 per cent in 2009. Cardiovascular medications, not including lipid-lowering agents or diuretics, were the most prescribed class for the 17th consecutive year with a total of 77.1 million prescriptions dispensed, valued at over $3.15 billion.
Corporate Day Care Opening
Kids & Company, a provider of corporate-sponsored child care, is opening a centre in Vancouver, B.C. The opening will showcase to the community its services which include guaranteed placement, nutritious meals, proprietary education programs in reading and art, and emergency back-up child care services. Current research shows an estimated 45 per cent of working parents miss at least one day of work every six months due to child care breakdowns. Studies additionally show that this inability to balance work, family, and community has been linked to reduced work performance, greater stress, higher employee turnover, and poor morale. It now has more than 30 centres in 18 cities and an additional seven locations in Hamilton, Niagara, Kanata, and Ottawa, ON; Calgary and Edmonton, AB; and Montreal, QC, will open in the coming months.
Product Registry Finalized
Senior representatives of the Canadian healthcare sector have finalized plans for the launch of the most comprehensive registry of healthcare product data of its kind in Canada. Managed by global supply chain standards body GS1 Canada, the Canadian Healthcare Product Registry (CHPR) will launch this fall. Based on global GS1 standards, and built according to GS1 Canada's proven model for driving data accuracy, the CHPR will improve patient safety and save money across the Canadian healthcare system. This central registry will respond to a key pain point within the healthcare system ‒ inaccurate product data. By centralizing and standardizing critical medical/surgical, pharmacy, and food product data shared between organizations in the healthcare sector, the CHPR is set to improve the accuracy and clarity of data used by the healthcare sector for operational and patient care purposes.
Sovereign Debt Defaults Examined
‘Too Big To Bail? Sovereign Debt Defaults And The Global Consequences’ will be the topic of a ‘C.D. Howe Institute Directors' Dinner.’ Willem Buiter, chief economist at Citi, will discuss the dangers of sovereign debt, the likelihood of defaults, and their alarming financial and economic consequences. It takes place May 19 in Toronto, ON. For more information, visit www.cdhowe.org
Monday, May 2, 2011
CAPSA Seeks Common DB Funding Approach
The Canadian Association of Pension Supervisory Authorities (CAPSA) draft 'Pension Plan FUnding Policy Guideline' attempts to develop a common approach for Defined Benefit pension plan funding policies, recognizing the link between funding policy and fund governance, says a Towers Watson ‘Client Advisory.’ While funding policies are not currently required under any Canadian pension standards legislation, the draft guideline notes that it is good practice and good governance to develop and adopt a funding policy. It states that it is the plan sponsor’s responsibility to adopt the funding policy, if any, and suggests that the plan administrator should then ensure that it is consistent with the plan’s investment policy. In the course of activities related to the establishment of a funding policy, the guideline specifies that the plan sponsor is not held to a fiduciary standard of care, but may be subject to an implied duty of good faith, and that the plan sponsor has distinct roles as administrator and as employer. Towers Watson says while many employers may have an unwritten funding policy, few have committed their policies to paper, especially in the absence of legislative or regulatory requirements to do so. Once finalized, the presence of a CAPSA guideline in this area may result in more sponsors establishing written funding policies. The guideline is open for comments until June 1.
Caisse Sells Stake In Office Tower
The Caisse de depot's Ivanhoe Cambridge real estate business has sold a stake in an office tower on Broadway in New York City's theatre district to partner SL Green. Its office property subsidiary SITQ held a 45 per cent interest in the property. The sale was made as part of its business plan which is to capitalize fully on developments in the real estate industry and take advantage of cycles in various markets where it holds assets. The 54-storey, 1.75-million-square-foot building’s tenants include Viacom, Aeropostale, Oakley, MTV Studios, and Billabong. Ivanhoe Cambridge holds a variety of commercial real estate properties from shopping centres to residential buildings in 24 countries around the world.
Private Equity Investors May Not Meet Standards
Private equity investors are coping with the challenges of valuation and audit of alternative assets, but a majority say their documentation process may not meet new accounting standards for hard-to-price and hard-to-value assets, says a survey by Northern Trust. “Clients are facing an increasingly complex landscape with regard to fair valuation rules for which minimal process guidance is provided,” says Paul Finlayson, alternative assets product manager. The survey indicated that investors recognize the need for improving internal processes. About 70 per cent described assessment of their investment as informal, with room for improvement to meet the criteria set by the Financial Accounting Standards Board. About half of the respondents anticipated greater need for documentation of these processes for future audits.
Sun Life Adds Funds
Sun Life Global Investments (Canada) Inc. has added three Canadian mutual funds to its product platform. The new suite includes a Canadian equity and Canadian balanced mutual fund sub-advised by BlackRock Asset Management Canada Limited and BlackRock Institutional Trust Company, N.A. The products, composed of index strategies and iShares exchange-traded funds, draw on the approach to risk management of both Sun Life and BlackRock. The bond fund will be sub-advised by McLean Budden Limited and is the first Canadian fixed income investment solution offered by Sun Life Global Investments.
Money Management Skills Improving
U.S. employees improved their money management skills and showed an increased urgency in retirement planning, but still have a long road ahead with retirement preparedness at record lows, says a research report from Financial Finesse, a provider of unbiased workplace financial education. It found 72 per cent of employees report having a handle on cash flow (up from 64 per cent in 2010), 54 per cent of employees report having an emergency fund (up from 48 per cent in 2010), and 88 per cent of employees report paying bills on time (up from 82 per cent in 2010). However, it says the vast majority are grossly unprepared for retirement with only 15 per cent indicating that they are confident they are on track to achieve their retirement goals. The remaining 85 per cent are vulnerable to not having enough saved for retirement. As well, their confidence in their investment choices remains low as only 34 per cent felt confident their investments were allocated properly in the first quarter of this year. The good news, Davidson says, is that employees, employers, and industry leaders, all recognize the problem and are taking action to solve it. Across the board, employees of virtually all income levels and all age groups reported that retirement was their top priority and the number of employees participating in their company-sponsored retirement plan increased from 83 per cent in 2010 to 91 per cent this year.
Rowbotham In Pension And Benefits Group
Mark Rowbotham is a partner in the pensions and benefits group at McMillan LLP. His areas of expertise include regulatory compliance, governance structures, investment management, outsourcing solutions, insolvencies and restructurings, and corporate transactions.
Colpitts Now CWT GM
Matt Colpitts is vice-president and general manager of Canadian Western Trust. He will be relocating to Vancouver, BC, from Calgary, AB. Previously, he was general manager of Valiant Trust Company.
Global Exchange Consolidation Examined
Global exchange consolidation and an exploration of Canada’s regulatory framework in comparison to the U.S. and Europe will be among the topics covered at the ‘FPL Canadian Trading Conference 2011.’ The conference agenda is divided according to interests into business and technical streams. As well, the event features networking opportunities and a trade show. It takes place June 9 in Toronto, ON. For more information, visit www.fixprotocol.org
May Interest Rate Assumptions
The interest assumptions required to calculate commuted values for an event which occurs in any month up to and including May 2011 are now available at www.an-actual-actuary.com. An Excel spreadsheet on the website contains seven worksheets:
• Commuted Values Feb 2011 CIA
• Marital Breakdown ‒ CSOP 4300, May 2009
• Annuity Proxy for Solvency Calculations for Non-Indexed & Fully-Indexed Pensions
• Minimum Interest on Employee Required Contributions
• HISTORICAL ‒ Commuted Values 2009 Basis (Now Frozen)
• HISTORICAL ‒ Commuted Values 2005 Basis (Now Frozen)
• HISTORICAL ‒ Commuted Values 1993 Basis (Now Frozen)