News Archives - November / December 2010
Friday, December 24, 2010
Canadians Could Opt For SPP
If Canadian governments take too long to take action on the PRPP, and if the SPP Saskatchewan Pension Plan is changed as proposed, Canadians might be attracted by the prospect of having their retirement savings professionally managed at a low cost in the SPP without having to make investment choices, says a Mercer Communiqué. It says a little known fact is that anyone in Canada with RRSP contribution room can join. Membership in the SPP is not limited to Saskatchewan residents. Proposals have been made to amend the SPP to increase the maximum annual contribution from $600 to $2,500, commencing with 2010, and to better fit with the RRSP rules. The SPP is a voluntary, Defined Contribution pension plan available to individuals with earned income, as defined by the RRSP contribution rules. Like an RRSP the SPP is a capital accumulation plan that provides a money purchase benefit. Employer contributions are not permitted. Like the CPP, a board manages the investment of plan assets. Since one of the pension reform proposals is the establishment of pension plans that would benefit from economies of scale with access for individuals who have no employer pension plan, with little fanfare and little effort, in only four pages of amendments, the federal government has created a candidate to fill this role: a government-sponsored DC pension plan that fits within the existing RRSP rules.
Desjardins In Deal With Western
Desjardins Financial Group has entered into a support agreement with Western Financial, the largest insurance and financial services retailer in Western Canada with offices in British Columbia, Alberta, Saskatchewan, and Manitoba. It will acquire all of the issued and outstanding common shares of Western Financial." This transaction will allow us to accelerate our business development in Western Canada and, in that way, it is perfectly aligned with our strategic plan," says Monique F. Leroux, chair of the board, president, and CEO.
Funding Strategies Used To Manage Risk
Pension plan sponsors in the United States are seeking more effective management of pension risks through better investment and funding strategies and implementation, says the ‘Towers Watson-Forbes Insights 2010 Pension Risk Survey.’ Nearly two-thirds of respondents (63 per cent) said they will more likely focus on reducing investment risk rather than seeking higher returns. Only 14 per cent of plan sponsors placed a greater focus on higher returns. To address investment risk, a better alignment of plan assets and liabilities (liability-driven investment) is the most favoured strategy, chosen by 66 per cent of respondents. Respondents are divided on the likelihood of using alternative risk strategies. While a majority of respondents use various financial instruments to manage pension risk, no single instrument is used by a majority of companies. For instance, slightly fewer than 40 per cent of plan sponsors use interest-rate swaps and futures and about 30 per cent use credit derivatives.
Chung Joins Equitable Life
Martin Chung is joining Equitable Life’s drug plan management and health and productivity efforts and focus. A pharmacist by profession, he was, most recently, a vice-president at Aon Hewitt Consulting focused on product and business development in the areas of pharmacy and employee wellness solutions. Previously, he worked at Pfizer Canada as senior manager, national private sector strategy and partnership development.
Mably Now Vice-president
Thursday, December 23, 2010
Getting Employers To Participate Still An Obstacle
The PRPP proposal is a great opportunity to address the largest of the obstacles to success, namely “how do we get employers to participate at a meaningful level,” says Neil T. Craig, a senior pension consultant at Stevenson & Hunt Insurance Brokers Ltd. In the small and mid-size market, he says, employers typically do not install programs for cost reasons, not necessarily fiduciary risk, investment cost, or administration costs, but real dollar costs. “In order for the PRPP to be a success, we need to address this final piece. Whether it is some form of tax credit for every per cent of contribution or some other business incentive, there needs to be something in it for the sponsor,” says Craig.
Rules Needed To Smooth Cycle
Regulators aiming to ward off the next financial market failure need to implement rules to smooth the boom-bust cycle in margin requirements and haircuts used in securities financing and derivative transactions, which seriously exacerbated the last financial crisis, says a study from the C.D. Howe Institute. In ‘Warding Off Financial Market Failure: How to Avoid Squeezed Margins and Bad Haircuts,’ David Longworth, adjunct professor at Carleton University and former deputy governor of the Bank of Canada, argues that key elements in a system-wide regulatory framework should include rules to mitigate swings between loose terms for margins and haircuts in boom times, and tightened terms during busts. The study is at http://www.cdhowe.org
U.S. Plans Underfunded
U.S. multi-employer pension plans were underfunded by an estimated $211 billion in 2009, amounting to an average 54 per cent funding ratio, says a Moody’s Investors Service report. This compares to estimated underfunding of $165 billion, with a 56 per cent funding ratio, in 2008. In 2007, multi-employer plans had a 77 per cent funding ratio. Multi-employer plans remained underfunded despite strong investment returns in 2009 because of lower discount rates.
Wednesday, December 22, 2010
PRPP Classic DC
If the PRPP proposal is implemented, employees who are choosing between sponsoring a Defined Contribution RPP and signing on to participate in a PRPP might find the PRPP attractive because the lion’s share of the obligations ‒ such as disclosure and investment education ‒ will fall on the administrator and not on the employer, says a Mercer Communiqué. However, the difficult issues of investment and longevity risk are not addressed in the PRPP as what is proposed is a classic DC promise. While the federal government has delayed its proposal to extend the CPP, the preferred option of organized labour, it does say PRPPs should be viewed as complementary to, rather than taking the place of, any increase in the CPP.
Employees Expect Increased Benefits
The majority of Canadian employees expect improved employment conditions and increased benefits in the coming year, says Randstad’s ‘Global Workmonitor.’ It found Canada is one of the few countries that has seen an improvement in benefits and primary employment conditions. In comparison to Australian and American employees, a larger share of Canadians (58 per cent) state that their primary employment conditions improved in the last year and 49 per cent of Canadians say their benefits improved in 2010. It also shows maintaining work-life balance continues to be a priority for the coming year.
PRPP Agreement Pleases ACPM
The Association of Canadian Pension Management (ACPM) is pleased that the federal and provincial governments reached agreement on a framework for Pooled Registered Pension Plans (PRPPs). ACPM views the introduction of PRPPs as a very positive step in expanding pension coverage options for Canadians. “PRPPs expand the options for coverage by targeting those Canadians who don’t currently have access to workplace pension plans,” says Christopher Brown, ACPM president. However, he says the PRPP rules need to be developed on a harmonized, pan-Canadian basis to ensure access to PRPPs and ease of administration across all provinces and territories. “We urge governments to act quickly to make the legislative changes necessary for PRPPs to become a reality for Canadians and we look forward to working with governments to finalize a viable framework for these plans,” he says.
Tuesday, December 21, 2010
Finance Ministers Behind PRPP
Canada’s finance ministers have emerged from their Kananaskis conference firmly behind the new Pooled Registered Pension Plan framework (PRPP) and with a commitment to continue to examine “modest” Canada Pension Plan changes, says Greg Hurst, of Greg Hurst & Associates Ltd. The PRPP will make it mandatory for employers to offer a pension plan, although they will not be forced to contribute and it will be mandatory for employees to participate in a pension plan offered by their employer. “This development is a ‘game-changer’ that will fundamentally change the way pension plans and other retirement savings are administered in Canada,” says Hurst. “The PRPP framework allows employers to shift most of the fiduciary and associated regulatory burdens of a Defined Contribution pension plan onto a financial institution that provides a PRPP. This will be very attractive to employers, whether or not they currently sponsor a pension plan for their employees.”
Pensioners Can Invest Nortel Funds
Nortel pensioners will be allowed to invest their pensions with private fund managers as the Ontario Liberal government will reverse a decision forcing them into a safer regime. In a letter, Finance Minister Dwight Duncan says the Nortel Retirees and Former Employees Protection Canada (NRPC) group made strong arguments for allowing greater pension choice and the government will table legislation allowing that choice while "safeguarding benefit security." Pensioners wishing to opt out of the government-led plan will now have to provide "adequate disclosure" indicating an informed choice. Details of the new plan are likely months away and will follow an open tender to financial institutions. Pensioners had complained they faced an immediate 10-per-cent loss if the government-led windup of their $2.5-billion plan went ahead with an annuity purchase as planned as annuity markets are at historic lows and lack the capacity to take on the Nortel fund's massive infusion of capital.
Large MEPPs Effective Solution
Establishing large multi-employer pension plans in Canada would be an effective way of addressing Canada’s retirement savings shortfall, says Quebec Finance Minister Raymond Bachand. In a statement, the Quebec government says that developing a harmonized regulatory framework among the provinces to foster the establishment of large multi-employer plans in Canada “would be a worthwhile way to increase savings for retirement,” particularly for self-employed workers and workers in small businesses. However, the federal government must undertake to amend its tax legislation and regulations to enable the development of large-scale pension plans that feature low costs for participants. Bachand also says more work needs to be done regarding the enhancement of the Canada Pension Plan and the Quebec Pension Plan to assess the option that best addresses the savings shortage, while minimizing the impact of higher contributions on the economy.
Coverage Shifting To DC
In addition to the decline in registered pension plan coverage, there has been a shift from Defined Benefit to Defined Contribution plans and other hybrid plans, says the Office of the Chief Actuary`s fact sheet on ‘Registered Pension Plans (RPPs) and Retirement Savings Coverage.’ Overall, the proportion of paid workers in DB plans has declined from 85 per cent to 75 per cent over the last 10 years. While this shift has been greatest in the private sector (from 77 per cent to 57 per cent), it has also occurred in the public sector as well (from 95 per cent to 93 per cent). As a result, the proportion of plan members in these types of plans has increased from two per cent to 16 per cent in the private sector, and from one per cent to two per cent in the public sector. The total number of plan members covered by an RPP increased steadily from 5.1 million in 1998 to six million in 2008, an increase of 18 per cent over the last 10 years. However, the proportion of paid workers covered by an RPP declined from 41 per cent in 1998 to 38 per cent in 2008. Although the number of RPP members has increased in the last 10 years, the number of paid workers has grown at a faster pace, which explains the decline in the proportion of paid workers with an RPP.
Sponsors Feel Responsible For Retirement Tracking
A majority of U.S. plan sponsors (62 per cent) feel that their responsibility includes taking an interest whether employees are tracking towards a comfortable retirement, says a survey by Deloitte, and are moving participant retirement readiness to retire right to the top as the most important plan improvement. It found only 15 per cent of plan sponsors believe most employees will be prepared for retirement. More than half (51 per cent) make individual financial counselling/investment advice available to all participants, while an additional 16 per cent are considering adding this feature in the next two years.
Discount Rate Range Wider
The range of discount rates being used by Defined Benefit plan sponsors continues to widen compared with past years with a 2009 range for pension disclosure that is 20 basis points wider than the previous year, says the ‘2009 SEI Plan Sponsor Accounting Database’ study. It says there was a 161-basis-point range for the 2009 rates as 90 per cent of companies with DB plans setting their discount rates in their 2009 pension disclosure at between 5.27 per cent and 6.88 per cent. “Last year most companies lowered their discount rate; however, some plan sponsors actually increased it, thus widening the range,” says Jon Waite, director, investment management advice and chief actuary for SEI’s institutional group. “The wide range of discount rates suggests diversity among companies in measurement date, liability structure, investment philosophy, and willingness to be aggressive when setting rates.”
Industrialized Countries Trailing
Emerging nations are still in the lead in terms of economic growth, while industrialized countries are trailing and hoping to resolve their structural issues quickly, says the Desjardins group economic studies team. "However, after a long period of inertia, some investors seem to be regaining a little appetite for risk, which is rippling into bond yields and stock markets," says François Dupuis, its chief economist. Many uncertainties continue to hamper global economic growth, especially in industrialized nations. This is especially true in Europe, where there are growing fears associated with the financial situation in some nations. While, in G7 nations, the economic recovery is still uncertain, emerging nations are posting impressive economic growth and real GDP is forecast to grow 6.1 per cent for 2010. It also found the Canadian economy has lost a lot of its lustre in the last few months. Soft U.S. demand, the strong loonie, and fast import growth have prompted the trade balance to deteriorate sharply.
Monday, December 20, 2010
Longevity Risk Becomes Important
With Canadians now living longer, longevity risk is becoming an increasingly important issue for the Canadian pension fund industry. In its ‘Living with Longevity’ white paper, Aberdeen Asset Management Inc. found a number of challenges remain in dealing with this risk factor. It found pension plans recognize longevity as an important determinant of future funding and perceive greater longevity as the third biggest risk they face after investment and interest rate/discount rate risks. However, calculations about longevity risk seem too conservative – despite pension plans foreseeing a rise in life expectancy, they continue to use mortality assumptions which are predicated on a dramatic slowdown in longevity improvements. As well, the awareness of the options to manage longevity risk is high. However, the practical adoption of many of the options remains relatively low. This reflects how, in some cases, plans have yet to address the issue and, for others, that there are significant barriers to adopting existing solutions.
More Retirees Coming
The proportion of retirees without the financial resources to replace three-quarters of their pre-retirement consumption could rise sharply – from about one in six currently to more than two in five – over the next 40 years, says a study by the C.D. Howe Institute. In ‘Canada’s Looming Retirement Challenge: Will Future Retirees Be Able to Maintain Their Living Standards upon Retirement?,’ Kevin D. Moore, senior researcher at Statistics Canada’s modeling division, William Robson, president and CEO of the C.D. Howe Institute, and Alexandre Laurin, associate director of research at the institute, found about 45 per cent of workers currently aged between 25 and 30 will not meet a 75 per cent replacement threshold. That's a jump of nearly 30 percentage points from those who retired in the past five years, it said. The earnings shortfall is likely to affect wage earners of all levels, including those in the lowest income brackets. Previous reports have assumed lower wage earners are unlikely to see a drop in income in retirement as their needs are covered by the Canada Pension Plan and Old Age Security.
PRPP Proposal Earns Support
The Canadian Federation of Independent Business (CFIB), the Association of Canadian Pension Management (ACPM), and the Portfolio Management Association of Canada (PMAC) are all applauding the proposal for a Pooled Retirement Pension Plans (PRPPs) system. The CFIB says it is pleased to see ministers moving away from focusing on raising Canada Pension Plan (CPP) benefits and premiums. "Small businesses will be pleased to learn that finance ministers are concentrating on practical steps to improve retirement income vehicles for employees and employers, rather than approving an increase in mandatory CPP premiums," says Catherine Swift, CFIB president. "The framework for has significant potential to improve the mix of retirement savings options for smaller firms and self-employed entrepreneurs." While it supports the general direction of the proposal for PRPPs, it is, however, opposed to any consideration that provinces make participation by employers mandatory. Christopher Brown, ACPM president, says "The best case scenario would be for rules to be developed on a pan-Canadian approach, to ensure these types of plans can operate on a multi-jurisdictional basis and achieve the economies of scale necessary to provide the maximum advantages to Canadians." The PMAC says it supports a stronger role for the private sector to fulfill retirement objectives. “The proposal avoids the uncertainty and time to amend the CPP. For the six out of 10 Canadian workers (including those self-employed) without an existing pension plan, this clearly is a welcome opportunity,” says Katie Walmsley, its president. However, labour is lashing out at the plan, saying the government is backtracking from previous proposals to expand the CPP. The proposal is “nothing more than a glorified savings plan for Canadians," says Sid Ryan, president of the Ontario Federation of Labour. "If this industry was capable of delivering secure pensions to Canadians, it would have done so 50 years ago."
BlueBay Acquisition Complete
Royal Bank of Canada has completed the acquisition of BlueBay Asset Management. The addition of BlueBay brings approximately $40 billion in assets under management to its global asset management business and expands its asset management capabilities in Europe and Asia. BlueBay is a specialist manager of fixed income credit offering long-only, long/short, and structured products across the major sub-asset classes of emerging markets, high yield, loans, convertibles, and investment grade.
Friday, December 17, 2010
Group Insurers Applaud PRPP Proposal
Canada’s large group insurers are applauding Federal Minister Jim Flaherty’s proposal to create Defined Contribution Pooled Registered Pension Plans (PRPPs) which may include the possibility of mandatory employer participation. Manulife Financial Corporation, Great-West Life Assurance Company, Standard Life Assurance Company of Canada, and Desjardins Group all say the proposal will increase Canadians' access to retirement savings vehicles. A backgrounder entitled ‘Framework for Pooled Registered Pension Plans’ makes a number of proposals. The PRPPs would have a suitable low-cost default investment option for a broad group and a manageable number of investment options for members to choose from. The framework also provides that employers will have the ability to increase the employee's default contribution rate from time to time. It is anticipated that the backgrounder will be discussed with provincial and territorial ministers of finance and treasurers meet next week. Donald Guloien, president and chief executive officer of Manulife, says these recommendations are a solid step forward and will be helpful for both individual Canadians and Canadian employers. Joseph Iannicelli, president and chief executive officer of Standard Life, says "Pooled Registered Pension Plans could be a milestone to improve access to pension arrangements and encourage Canadians to save for retirement." Bill Kyle, Great-West Life's executive vice-president, wealth management, says the proposed PRPP structure makes it administratively attractive to the sponsoring employer as a majority of the complex pension administration will be performed by the financial institution. Desjardins Group, through Desjardins Financial Security, says it intend to work with the federal and provincial governments to set up the program. It hopes that the framework will be easy to use and readily available to the greatest number of people possible.
Company Stock Ownership Declines
Participants in 401(k) plans continued to reduce their holdings in their employers’ company stock, says the latest data from the EBRI/ICI 401(k) database. It shows that the share of 401 (k) accounts invested in company stock continued to shrink in 2009, falling by half a percentage point to 9.2 per cent in 2009. Recently hired 401(k) participants were also less likely to hold employer stock. Overall, 46 per cent (or 9.5 million) of the 401(k) participants in the database were in plans that offered company stock as an investment option and among participants who were offered company stock in their 401(k) plan, 72 per cent held 20 per cent or less of their account balances in company stock, including 48 per cent who held none.
Anglican Church Appoints State Street
State Street Corporation has been appointed by the General Synod Pension Plan of the Anglican Church of Canada to provide custody, fund accounting, securities lending, and foreign exchange services for $600 million in assets. The General Synod Pension Plan of the Anglican Church of Canada is a multi-employer pension plan registered with the province of Ontario and has been in existence since 1946. It provides pension benefits to clergy and lay employees of the Anglican Church of Canada and related organizations.
Teachers’ Invests In Renewables
Ontario Teachers' Pension Plan (Teachers') has made an equity investment in BluEarth Renewables Inc., a privately held company focused on acquiring, developing, constructing, and operating hydro, wind, and solar power projects in North America. BluEarth is a Calgary, AB-based company recently formed by the founders and senior management of Canadian Hydro Developers Inc.
Caisse Buys Water Company
The Caisse de dépôt et placement du Québec has completed a $259 million investment in South East Water (SEW). SEW is a regulated company that supplies drinking water to 2.1 million customers in England. Following this transaction, the Caisse will own a 50 per cent stake in SEW. The remaining 50 per cent will be held by Utilities Trust of Australia.
Northern Trust has enhanced its risk tools by integrating BarraOne with its global operations platform to strengthen predictive risk analytics and reporting across asset classes, including derivatives. The integration of BarraOne’s global, multi-asset class portfolio risk service with Northern Trust’s custody, accounting, fund administration, and collateral management platform provides a seamless view of risk and compliance information for clients including investment managers, pension funds, insurance companies, family offices, and other asset owners.
Thursday, December 16, 2010
As the first wave of Canada's Boomer generation turns 65 years old in 2011, almost one-quarter (23 per cent) are concerned about having enough savings, says the ‘21st Annual RBC RRSP Poll.’ However, the majority (71 per cent) of Boomers who will reach their milestone 65th birthdays next year, with financial plans in hand, say that they are better off financially as a result of those plans. Two-thirds of 64-year-old Boomers first developed their financial plan at an average age of 35, once they began accumulating assets and started saving. Four-in-10 (42 per cent) Boomers have a formal written financial plan, compared to 19 per cent of the country's general adult population. The RBC poll also found that overall, Boomers say their best outcome for retirement would be good health (28 per cent) followed by living life the way they envisioned (25 per cent), and having saved enough money for a comfortable retirement (23 per cent). For 64 year old Boomers, the vast majority (67 per cent) is in agreement that the best gift they could receive is "good health."
The Defined Contribution pension plan industry continues to be a source of highly innovative statement features, says Dalbar’s ‘Trends and Best Practices in Defined Contribution Pension Plan Statements’ report. This industry segment recorded the highest industry average among all other segments evaluated this year by Dalbar, such as the mutual fund, managed portfolio, and brokerage industries. In keeping with the objective to promote the highest standards in client reporting, Dalbar's investor statement evaluation criteria underwent a comprehensive review and update this past year. Evolving consumer expectations, changing economic climates, and the advent of new technologies were factored into the update in a bid to raise the level of quality offered by Canadian Defined Contribution pension plan statements. More importance was paid to the availability of statements with Accessible formats, especially relevant to the pension industry. The top three ranked firms from this year's study were Desjardins Financial Security, Standard Life, and Sun Life Financial.
MFC Global Investment Management is changing its brand name to Manulife Asset Management across its global operations. With this change, the asset management organization's global network in 17 countries and territories will now operate under the Manulife Asset Management brand. This brand is already in use across six of the company's operations in Asia. In addition, to leverage the John Hancock brand in the United States, Manulife Asset Management will use John Hancock Asset Management as a sub-brand when providing investment management services related to John Hancock products sold in the United States.
Registration for the CPBI FORUM 2011 is now open. It takes place May 18 to 20 in Vancouver, BC. The program for the event is still being developed. However, for more information as it becomes available and to register, visit http://www.cpbi-icra.ca/
Wednesday, December 15, 2010
Enhancing and expanding the private pension system could prove very beneficial, says TD Economics. In a submission to the Ontario government, it says that the most at-risk population for a shortage of retirement savings is low-middle income individuals that do not have an employer pension. It prefers a solution that would target that population. And although a new national public pension plan with coverage for all workers without an employer pension would be the most targeted policy response, it would also support a broadening of pension services from the private sector. “By eliminating the employee-employer relationship requirement, an expanded range of competitive private sector options could be made available,” it says, noting that it supports this idea and “any others that would enhance the availability and efficiency of private sector pension vehicles.” TD is less in favour of expanding the CPP, which carries the disadvantage of being a payroll tax.
Federal Plans Less Sensitive
The federal government is proposing regulatory changes to help make federally regulated private pension plans less sensitive to financial market volatility while protecting plan members and retirees. Proposed amendments to the Pension Benefits Standards Regulations, 1985 would permit plan sponsors to secure properly structured letters of credit in lieu of making solvency payments to the pension fund, up to a limit of 15 per cent of plan assets; require plan sponsors to fully fund pension benefits on plan termination; void any amendments to a pension plan that would reduce the solvency ratio of the pension plan if the plan’s solvency ratio would be below 0.85; and permit sponsors, plan members, and retirees of distressed pension plans to negotiate their own funding arrangements to facilitate a plan restructuring.
The Canadian Federation of Independent Business (CFIB) is encouraging governments to discuss ways to strengthen Canada's retirement income system without increasing Canadian Pension Plan (CPP) premiums. In advance of the December 20 meeting of federal, provincial, and territorial finance ministers, it expressed its concern over the support in June given by some ministers to increase the CPP and with proposals from groups such as the Canadian Labour Congress (CLC) to double CPP benefits. "These proposals appear to ignore one very important element," says Catherine Swift, president of CFIB, "and that is the impact of raising CPP premiums on the economy, employment, and wages." Recent CFIB research found that every one percentage point increase in CPP premiums beyond the current 9.9 per cent shared by employers and employees will result in the loss of 220,000 employment years. If governments are fixed on increasing CPP, CFIB recommends they examine doing this on the employee-side only. "While rising CPP premiums on employees only is still a concern, ultimately it represents deferring income from the present to the future," Swift says. "For employers, however, an increase in CPP is simply a payroll tax hike with no future benefit accruing to the firm."
Investors could experience plenty of good cheer during the holidays as 77 per cent of investment managers are bullish on Canadian equities for the fourth quarter of 2010, says the latest Russell ‘Investment Manager Outlook.’ “Canadian equities were the prime benefactor of improving sentiment, with the proportion of bullish investment managers up from 56 per cent to 77 per cent. Bears fell from 31 per cent to just 15 per cent. Although Canada is not immune to economic challenges – especially if the U.S. recovery continues to lag – our nation’s strong resource base is clearly a valuable asset as the global economy picks up steam,” says Sadiq S. Adatia, chief investment officer of Russell Investments Canada Limited. Bullish sentiment towards equities surged in the fourth quarter of 2010. Not only are managers increasingly bullish across domestic, U.S., international, and emerging market equities, but bears have dropped off markedly.
Equity market returns will likely soften in the next few years, but they’ll still outperform bonds, says Paul Taylor, chief investment officer at BMO Harris Private Banking. He expects the S&P/TSX composite index to reach a target of about 14,200 in 2011 and is particularly bullish on cyclical sectors such as energy, consumer discretionary, technology, and materials. However, many retail investors need to see more economic stability before they’ll be willing to re-enter the stock market.
Emerging Markets To Lead The Way
Emerging markets will lead the way for the global economy in 2011, say analysts with BofA Merrill Lynch Global Research. Its analysts' forecasts for the year ahead project global GDP growth of about 4.2 per cent, slowing from 4.9 per cent this year. Most of that is going to be driven by emerging markets which the report projects will grow 6.4 per cent. It also sees upside in stocks with global equities rising by about 15 per cent in 2011. The S&P 500 index will reach 1,400 in 2011, driven by a combination of stronger earnings and some expansion in price-earnings ratios.
A.J. (Pine) Pienaar is senior vice-president of client relations; Michael Baker is senior vice-president, operations; Robert Mah is senior vice-president of infrastructure and timber investments; and Jean David Tremblay-Frenette is vice-president, global tactical asset allocation, at Alberta Investment Management Corp. Pienaar was previously president and CEO of J.P. Morgan Asset Management (Canada) while Baker was executive vice-president, retail financial services, at ATB Financial. Mah was most recently managing director at Scotia Capital, responsible for investment banking and, prior to that, mergers & acquisitions. Tremblay-Frenette was formerly chief analyst, strategy and corporate development, with the National Bank of Canada.
Tuesday, December 14, 2010
HOOPP has completed a major partnership deal that will see it take a 50 per cent stake in the $159-million St James’s Gateway development in London together with the adjacent Clydesdale block. The other partner, The Crown Estate, will retain the freehold for the blocks and grant the joint venture a new 150-year lease. The Crown Estate will oversee the development and directly asset manage the properties upon completion, which is expected in 2013. Michael Catford, vice-president of real estate at HOOPP says “St James’s is one of London’s most internationally renowned destinations and we look forward to being a part of its future. This is HOOPP’s first direct property investment outside of Canada and in The Crown Estate we have found a great co-venture partner." The development will deliver 57,000 sq ft of office space; 21,000 sq ft of retail space; and 19,000 sq ft of residential space (15 units). It comprises the buildings on the western side of the block to the south west of Piccadilly Circus, bounded by Jermyn Street, Eagle Place and Piccadilly.
Nortel Networks is responsible for about $2.1 billion in pension deficits in its UK. Defined Benefit plan, as a result of a UK court decision that also ranked pension obligations before all unsecured creditors in bankruptcy proceedings. Britain’s High Court of Justice ruled the Pensions Regulator, which oversees U. occupational pension plans, can pursue financial support directions and contribution notices to insolvent companies and their overseas parent or subsidiaries to provide financial support for their UK pension plans. These obligations are considered “administration or liquidation expenses,” according to the judge. Legal experts say the ruling would give pension liabilities “super priority” status, trumping the administrator’s own costs, some secured creditors, and all unsecured creditors.
Canadians aged 25 to 34 fear that they will have to work longer into their golden years, says a poll by Edward Jones. This is a concern that has increased over the past four years. In 2006, 28 per cent of Canadians aged 25 to 34 listed this as their top fear about retirement, while today 40 per cent say this is their top fear. "The recession has been a wake-up call for many investors - especially those that are still early in their careers," says Sucharita Maitra, principal, retirement planning, Edward Jones. "Many fear that they will have to work longer to supplement their savings making retiring at 65 a pipe dream, a worry that has become even more pronounced since the recession."
Monday, December 13, 2010
Provisions relating to withdrawal of surplus by an employer, thought to be eased in wind ups and partial wind-ups by the provisions of Ontario Bill 236 that were passed into law in May of this year, are now very clear with Bill 120 getting Royal Assent, says Priscilla H. Healy, in Fogler, Rubinoff’s ‘Pension Alerts.’ An employer may withdraw surplus pursuant to a wind up or partial wind up either if it can establish legal entitlement, which can be but need not be pursuant to a court order, or if it obtains the written consent of two-thirds of the active members (a union may agree on behalf of those members) and the consent of that number of the former members and other persons entitled to payments from the plan that the superintendent considers appropriate. It is expected that the number the superintendent considers appropriate will usually be two-thirds.
The Caisse de Depot et Placement du Quebec plans to boost its private equity unit staff by about 25 per cent next year as it looks to increase investments in its home province. Investments in Quebec companies represent about one-quarter of the Caisse's private equity assets. Together with partners such as Desjardins Group, the Montreal-based Caisse runs several funds that focus on small and medium-sized companies based in the province. Its private-equity holdings include stakes in Quebec gas distributor Gaz Métro and Quebecor Media, the owner of cable operator Videotron. It managed about $16.6 billion in private equity assets at the end of 2009.
The Ontario Teachers' Pension Plan (Teachers’) has received aiCIO’s Industry Innovation Award for public pension funds with more than $15 billion in assets. The aiCIO Awards honour asset owners – such as public and corporate pensions, endowments, and foundations – that have successfully understood and acted upon material risks in today’s markets and delivered long-term and consistent results. “Due to strong pension governance that removes it almost entirely from the political process, Teachers’ is able to compete with hedge funds and investment banks for talent – resulting in world-class internal alternatives teams that are scooping up large assets worldwide while providing robust returns for their constituents,” says aiCIO.
Compared to last year, a sense of optimism and confidence is in the air as Canadians enter Retirement Savings Plan (RSP) season, says a BMO Financial Group survey. Tempering this positive news is the fact that significant numbers of RSP holders do not fully know what investments they hold in their retirement portfolios. The survey found the vast majority (79 per cent) of respondents either feel the same or are more optimistic when it comes to the financial markets when compared to last year. Two-thirds (66 per cent) believe they are on the right path when it comes to saving for their retirement. However, a disturbing 70 per cent are not fully familiar with the mix of investments in their RSP accounts, with only 20 per cent of women and 43 per cent of men reporting being fully familiar with what they hold.
John Robertson is president and chief operating officer at Integrated Asset Management Corp. In 1987, he co-founded First Treasury, now Integrated Private Debt Corp., the wholly-owned private corporate debt subsidiary of IAM. He brought his team into IAM in 2000.
Friday, December 10, 2010
Investment managers have been forced to lower fees for non-traditional asset classes as schemes look to cut operational costs, says Mercer’s ‘2010 Asset Manager Fee Survey.’ As well, by region Canada is shown to be the cheapest, with average fees of 0.3 per cent. The UK and Australia follow with averages of 0.46 per cent and 0.47 per cent. Emerging markets remain the most expensive, at around 0.87 per cent. It shows fees for hedge funds, private equity, infrastructure, and real estate are all down from 2008. Fees for traditional asset classes have varied, with some increases in long-only equity and fixed income strategies. Among traditional asset classes, global emerging markets equity remains the most expensive while fixed income continues to be the cheapest traditional active asset class.
Hedge funds no longer stand at the abyss, says an Ernst & Young report. The ‘Restoring the balance: 2010 global hedge fund survey’ shows that in 2008, at the height of the downturn, nearly half of the hedge funds interviewed reported investment returns of -10 per cent or worse. In 2009, 45 per cent reported positive returns of more than 20 per cent. However, less spectacular gains are expected for 2010. The survey also reveals that investors agree with most hedge fund managers that the impact of new government regulations will reshape the future of the hedge fund industry. However, investors and managers both feel that enhanced regulations will not be overly beneficial.
The value of retirement savings of 4.9 million Canadian workers with employer-sponsored pension funds amounted to $936.5 billion at the end of the second quarter, down 0.7 per cent from the first quarter, says Statistics Canada. This was the first decline in the value of pension funds assets since the first quarter of 2009. Pension fund revenues remained stable at $24.3 billion in the second quarter. Increases in pension contributions and investment income offset the reduced profits from the sale of securities. Expenditures increased to $17.2 billion, principally as a result of an increase in losses on the sale of securities, an indication of ongoing market volatility. Just over six million Canadian workers are members of employer pension plans.
More U.S. employees are choosing where to work to keep their retirement and health plans, and more intend to continue working for their employers until retirement, say a Towers Watson survey. ‘Retirement Attitudes’ found 26 per cent of employees cited their company’s retirement plan as an important factor in their decision to join their current employer. Of those employees who have been with their companies for less than two years, 60 per cent cited the retirement plan as an important factor. Of employees at companies with Defined Benefit plans, 80 per cent would like to continue working for their employers until they retire, up from 67 per cent in February 2009. At companies with Defined Contribution plans only, 62 per cent of employees would like to continue working for their employers until they retire, up from 53 per cent in February 2009.
Increasing Fixed Income Allocations ‘Nonsense’
Advice to increase pension plan fixed income allocations are “nonsense,” says Lord Myners. The Financial Services Secretary in the Labour Government of Gordon Brown and author of the Myners Report which recommended a voluntary code of practice for the UK pension fund industry also warned that the bond market is an “enormous bubble which will burst.” He says schemes are wrong to buy bonds in the current economic climate as long-term interest rates are likely to double over the next four years, a shift that would force down bond prices significantly. He also said inflation will rise due to recent quantitative easing – reducing the real value of the asset class.
Thursday, December 9, 2010
The federal government has proposed rule changes to accommodate planned reforms to Saskatchewan’s pension plan outlined in the province’s 2010 budget. The amendments would allow an increase in the annual contribution limit to the Saskatchewan Pension Plan to $2,500 from $600. They will also align its tax treatment with that of other tax-assisted retirement savings vehicles. The Saskatchewan Pension Plan is a voluntary Defined Contribution plan that serves as an alternative for small businesses that do not offer their own pension plans. The changes ensure that Saskatchewan Pension Plan members benefit from additional features of the RRSP and RPP rules that were not previously available to them. Saskatchewan’s government is simultaneously proceeding with amendments to provincial legislation and regulations required to enact these changes.
Ontario Passes More Reforms
The Ontario government has passed a set of pension reforms it believes will modernize and strengthen its pension legislation. The reforms will strengthen funding rules; permit more flexible funding rules for certain multi-employer pension plans and jointly sponsored pension plans; clarify pension surplus rules and provide a dispute resolution process to allow members, retirees, and sponsors to reach surplus-sharing agreements on plan wind-up; provide a more sustainable Pension Benefits Guarantee Fund; and further strengthen regulatory oversight and improve plan administration. This latest series of changes means the government has dealt with about two-thirds of the 142 recommendations made by its expert commission’s report on pension reform. The remaining recommendations may be included in future reforms.
A three-member task force has been appointed to find ways to make private pension plans in New Brunswick the best protected in Canada. The three members of the task force are Paul Joseph McCrossan, an actuary; Susan Rowland, a lawyer; and Pierre-Marcel Desjardins, an economics professor. The ‘Task Force on Protecting Pensions’ goal is to ensure New Brunswick has in place rules and regulations that offer the greatest protection of the workers pensions. There are currently about 300 pension plans for workers in New Brunswick. No timeline was set out for the task force's work. The province’s department of finance will conduct its own review of pension funds in the public sector.
Half of pension plans in the U.S., U.K., and the Netherlands used LDI strategies as of October 31, says an ‘SEI Global Quick Poll.’ It found of those using liability-driven investing, 75 per cent used long-duration bonds, 43 per cent short-term cash management; 36 per cent emerging markets debt; and 24 per cent interest-rate derivatives. “While interest in liability-driven strategies remains high, the reality is that the timing of implementations will differ from one organization to the next,” says Jon Waite, director of investment management advice and chief actuary of SEI's Institutional Group. “At a time when funding levels are low, pension plan sponsors need insight around how these strategies can be implemented now and in the future to best protect the plan's funded status.”
The aggregate pension deficit of the world's l00 largest companies grew to €160 billion ($209 billion) as of September 30, up 6.7 per cent since the end of 2009, Lane Clark & Peacock, an investment consulting and actuarial. Rising asset prices added €30 billion to multi-nationals' pension funds in the first nine months of 2010. However, falling corporate bond yields used to calculate corporate pension liabilities caused liabilities to rise €40 billion in the same period.
Wednesday, December 8, 2010
The Investment Funds Institute of Canada (IFIC) is calling for a balanced package of reforms that will strengthen all pillars of Canada’s retirement system including Pillar 4 (non-registered financial assets). In its submission on the Ontario Ministry of Finance’s consultation paper 'Securing Our Retirement Future: Consulting with Ontarians on Canada’s Retirement Income System,' IFIC says a balanced set of reforms that would include a modest enhancement of the Canada Pension Plan is achievable. As well, it wants registered pension plans and registered retirement savings plans available in the workplace to be more efficient and accessible. It is also urging the federal, provincial, and territorial governments to explore the full picture of retirement assets as they consider what actions should be taken related to the current retirement income system in Canada. Its submission is at www.ific.ca
The Canada Revenue Agency has published a number of new documents that relate to GST/HST for investment plans that are SLFIs, says Greg Hurst & Associates. These documents will be extremely important to the interests of investment plan managers of plans required to meet GST/HST new reporting and remittance requirements in respect of the investment plan within prescribed time periods. Investment plans that are SLFIs have members/investors in two or more provinces, at least one of which is a province that has implemented the HST, and (among other arrangements) in particular include the certain employee benefit arrangements that are a trust governed including registered pension plans, deferred profit sharing plans, retirement compensation arrangements, employees’ profit sharing plans, and registered supplementary unemployment benefit plans.
A majority of Canadians (79 per cent) who already have money invested in RRSPs plan to invest the same or more this tax year than they did last year, says research from Investors Group. That’s an increase of 11 percentage points from the intentions of last year’s contributors (68 per cent). As well, Tax-Free Savings Accounts continue to gain popularity as a savings and investment tool for Canadians. Forty-three per cent have opened a TFSA account compared with 24 per cent at this time last year. Among those who have not yet opened a TFSA, 19 per cent plan to open one in 2011.
Index Focuses On EMs
FTSE Group launched an emerging market focused index – the FTSE EPFR EM Fund Flows Index. The index, a factor-adjusted version of the FTSE Emerging Index, overlays 'country flows' data on top of a market cap weighted index. Country flows data tracks investment allocation and flows in funds covering stock markets in developed and emerging countries. The index gives investors a picture of how these factors are driving emerging markets and can help improve portfolio performance by influencing an investor’s country weight adjustments.
Tuesday, December 7, 2010
The government of Prince Edward Island has introduced Bill No. 30, the Pension Benefits Act, says a McInnes Cooper 'Legal Update.' This legislation will apply to PEI employers with pension plans, as well as any employers with PEI employees who offer pension plans to their employees. The PEI act appears to be almost identical to the current version of the Nova Scotia Pension Benefits Act. As a result, among its more notable features is a requirement to provide grow-in benefits, including terminal funding of grow-in benefits on any wind-up or partial wind-up. Prince Edward Island had previously enacted a Pension Benefits Act in 1990, but had never proclaimed the legislation into force. The new legislation will repeal the prior act. The government is planning an extensive consultation with stakeholders.
Organizations employing custodians who provide a health service will need to address the amendments to Alberta's Health Information Act (HIA), says a Spectrum HR Law 'Labour & Employment Bulletin.' The HIA applies to all health information regardless of how the health service was funded. Previously, only publicly funded health professionals had access to health information and were governed by the act. With the amendments, the HIA now also applies to privately funded health professionals who will have access to individuals’ health information.
The Ontario Teachers’ Pension Plan Board is part of an international investment group that’s agreed to buy an 18.65 per cent stake in BTG Pactual, a Brazilian investment bank and money manager. Its partners include the government of Singapore Investment Corp., China Investment Corp., Abu Dhabi Investment Council, JC Flowers and Co., RIT Capital Partners and Lord Rothschild’s family interests, the Santo Domingo Group, EXOR, the investment company controlled by the Agnelli family, and the Motta family. “The capital increase, from this highly respected group of investors, will allow us to consolidate our position as a leading emerging market-based investment bank and asset manager,” says Andre Esteves, BTG Pactual's chief executive.
Impact investing, which prioritizes positive social and environmental impact over investment returns, could see new capital inflows ranging from $400 billion to nearly $1 trillion in the next 10 years as the ‘emerging asset class’ targets segments of the economy typically under-served by traditional business, says a report from JP Morgan. It says impact investing merits the status of a new asset class and estimated that it could generate potential profits by investing in sub-sectors including agriculture, water, housing, education, health, energy, and financial services (microfinance), notably in countries where people earn less than $3,000 annually. Impact investing favours capital deployment intended to create positive impact beyond financial return. It is increasingly seen as a more dynamic, market-based alternative to philanthropy.
Monday, December 6, 2010
Given the attention being paid by all governments across Canada to the decline in pension coverage levels, this is no time to cause more companies to move away from offering their employees the retirement security of a Defined Benefit plan, says Towers Watson's 'Rethinking Retirement.' It says current proposals to give priority in bankruptcy and insolvency proceedings to unfunded pension plan liabilities will actually increase the risks to DB plan members and, ultimately, contribute to the continued decline in private pension coverage levels. Of particular concern is the potential significant impact of priority changes on the bond ratings and credit spreads of companies that sponsor DB plans. The assumption by parties in favour of Bills C-501 and S-214 appears to be that their impact on the bond market and the economy would be minor, but no convincing evidence that takes into account the scale and maturity of Canada’s employer DB pension system has been provided to support this conclusion. The sheer size of many Canadian DB pension plans already makes their impact on the corporate finances of plan sponsors very material. This impact would only increase if changes to bankruptcy priorities cause DB pension deficits to become a risk factor for corporate bond holders. While these bills are intended to protect members when funded ratios are down and the economy is struggling, that is precisely when their provisions will have the most negative impact on bond holders, putting the ability of companies to raise capital − and, therefore, the job and pension security of DB plan members − at risk.
The Ontario Teachers’ Pension Plan strongly supports the need to find a retirement security solution for all working Canadians. The need to find the right solution has become even more acute in the aftermath of the 2008 worldwide financial crisis, it says. Of the various proposals that have been made to address this urgent need, it says it believes that the best solution is either an expanded Canadian Pension Plan or the establishment of new multi-employer Defined Benefit pension plans which are jointly governed by employer and employee representatives.
Though pension funding levels improved in November, they have not recovered to year-end 2009 levels, implying a potential December 31 hit to corporate balance sheets, says data from Mercer. The deficit in pension plans sponsored by S&P 1500 companies decreased by $14 billion to $359 billion at the end of November. This deficit corresponds to a funded status of 79 per cent, compared to a funded status of 78 per cent at the end of October and 84 per cent on December 31, 2009.
Bushell Manager Of Decade
Eric Bushell, chief investment officer of Signature Global Advisors, is the Morningstar Fund Manager of the Decade. This is only the second time this award has been presented. Signature was also awarded the Best Global Balanced Fund. It is a division of CI Investments and manages approximately $25 billion in various income, equity, and balanced funds.
TDAM, the manager of TD Mutual Funds, is the Morningstar Fixed Income Fund Manager of the Year. Its fixed income line-up includes its Canadian Bond Fund, Corporate Bond Capital Yield Fund, and Income Advantage Portfolio. Other TD funds which won awards were the Monthly Income Fund, Canadian Bond Fund, and Health Sciences Fund.
Friday, December 3, 2010
The Ontario Teachers’ Pension Plan Board is asking $1.5 billion for its share of Maple Leaf Sports and Entertainment. A report in the Globe and Mail says the sale price represents a 25 per cent premium over the estimated value of the Toronto Maple Leafs, the Toronto Raptors, Toronto FC, and the Air Canada Centre. While it says it is not actively shopping its 66 per cent share in the company, as it has been open to offers for several years.
Pension management was a topic for discussion at Toronto Financial Services Day in New York. A panel on Canada’s global pension management expertise included Philip Haggerty, vice-president, corporate development, at OMERS, Paul Forestell, a senior partner at Mercer Consulting, and Richard Johnston, a partner at Fasken Martineau DuMoulin LLP. Haggerty noted from a recent report that Canada’s largest public pension funds earned an average annual return of 5.5 per cent over the past 10 years, while the top U.S. public pension funds earned an annual return of 3.2 per cent in the same period. The difference was attributed largely to the internal expertise developed by the Canadian funds which reduces external management fees, and, more importantly, aligns investment strategy more closely with the mission of the pension fund. The challenge, for both U.S. public and Canadian private pension funds, is to improve performance by adapting the concepts used by the large Canadian public funds.
Mawer Investment Management Ltd.’s Jim Hall has won the Morningstar Equity Fund Manager of the Year award at the 16th annual Canadian Investment Awards. Its Canadian Equity Pooled Fund, Canadian Diversified Investment Fund, and Mawer World Investment Fund also received top honours.
Jamie Storrow is director and head of the infrastructure investment advisory and direct co-investment programs at Northleaf Capital Partners. Previously, he was a senior vice-president at the Macquarie Group where he worked on acquisitions, divestitures, asset management, capital raising, and consortium building in the infrastructure sector across North America and Europe.
Thursday, December 2, 2010
The Ontario Teachers’ Pension Plan is not discussing the sale of its stake in Maple Leaf Sports and Entertainment Ltd., owner of the Toronto Maple Leafs, basketball’s Toronto Raptors, and the Toronto FC soccer franchise. A report in the Globe and Mail says Teachers sent a message to the National Hockey League denying it was talking with potential purchasers after reports of these talks surfaced. Teachers, which owns 66 per cent of MLSE, says it was not actively shopping MLSE around to buyers. If Teachers were to start a sale process involving the Toronto Maple Leafs, it would need the NHL’s permission before any prospective buyer could look at the team's financials and the NHL has not granted this permission. Teachers bought its stake in MLSE in 1994 for $180 million. It is now valued at more than $1.7-billion.
More members of the workforce of Canadian employers may be at risk of health issues than they may have thought, says the 'Sun Life Canadian Health Index.' It says 60 per cent of Canadian employees have three or more unhealthy behaviours. These employees are more likely to incur higher group benefit costs due to absenteeism, drug claims, and disability. The study also reveals that 60 per cent of Canadians believe their employer has some responsibility when it comes to their health. Kevin Dougherty, president, Sun Life Financial Canada, says "It's clear Canadians understand the connection between maintaining a healthy lifestyle and preventing chronic diseases, now we just need to start taking action. Employers have a great opportunity to be part of the solution."
Canada’s Venture Capital and Private Equity Association (CVCA) has released a study that is aimed at attracting more foreign investment into Canadian venture capital and private equity funds. “Our venture capital and private equity industry wants and needs more foreign investment”, says Gregory Smith, CVCA president and managing partner of Brookfield Financial, “We are sending a signal to international investors about allocating capital resources to this dynamic and innovative part of the Canadian financial system.” The study points out the many attractive features of Canada’s venture capital and private equity industry, including a sophisticated infrastructure and multi-domain expertise. The study is at www.cvca.ca
Buck Providing Apps
Buck Consultants, A Xerox Company has launched two iPhone applications that let users keep track of health insurance benefits and store key health information. With the Benefits Genie Lite application, users can enter their health and insurance benefit information for themselves and family members right into their phone. The application makes it easy to keep track of known allergies, prescribed medications, current vaccinations, health screenings, past and future doctor appointments, appointment reminders, physician contact information, and benefit co-payments and deductibles. A more extensive version of the application, Benefits Genie, includes a networking feature that helps users share and receive information with those they trust such as family, friends, and caretakers.
Bentall Kennedy is bringing together two respected entities – Bentall LP and Kennedy Associates Real Estate Counsel, LP. Together, they serve the interests of more than 400 clients across 130 million square feet of office, retail, industrial, residential, and hotel properties totalling $23 billion throughout Canada and the U.S. Bentall originated in 1911 as a Vancouver-based construction company. In the ensuing 100 years, it has become Canada's largest real estate advisory and services organization. Kennedy Associates was established in 1978 and grew to become America's largest independent real estate advisor. The two companies joined forces under a strategic partnership in 2006 and now are creating a comprehensive, North America-wide platform. Bentall Kennedy provides clients with the means to invest in real estate in both the United States and Canada through a single investment platform.
The founder and chief operating officer of Banyan Work Health Solutions has been selected as a finalist for the RBC Momentum Award at the 2010 RBC Canadian Woman Entrepreneur Awards. Maria Vandenhurk was recognized for her accomplishment in changing the way companies look at disabilities. Her work with Banyan has left a footprint on the industry by demonstrating to insurers and business leaders the return on investment associated with spending on rehabilitation solutions. She was one of three women shortlisted for the award.
Michael Falcon is managing director and head of retirement in the U.S. and Canada for J.P. Morgan Asset Management. He has 25 years of experience in personal finance, investments, banking, and consumer products, most recently as manager of a financial media and consulting firm. Prior to that, he was a senior executive in Merrill Lynch's wealth management business.
Wednesday, December 1, 2010
Ontarians appreciate the healthcare they are receiving, says a survey by the Healthcare of Ontario Pension Plan (HOOPP). Its public survey on healthcare in Ontario found 84 per cent of respondents rated the quality of healthcare in Ontario as good or exceptional. However, 71 per cent said healthcare is the most important thing the provincial government has to do – the environment, the deficit, and childcare were seen as lower priorities. John Crocker, HOOPP’s president and CEO, says “The challenge is they want more staff and shorter wait times. Ontarians also want the same high quality care in the community care setting as they receive in hospitals.” HOOPP commissioned the survey in advance of sponsoring the HOOPP Think Tank, a blue-ribbon group of healthcare administrators, union officials, government representatives, and healthcare practitioners. “We feel that those who deliver healthcare have unique perspectives on how the system we all value can be more efficient,” says Crocker. “We hope that the outcome of our discussions, which we will deliver to the government and the media in a few weeks, will focus attention on solutions to keep the system healthy and effective for all Ontarians.” More details on the survey can be viewed at: http://www.hoopp.com
AGF Management Ltd. is buying Acuity Funds Ltd. and Acuity Investment Management Inc. The acquisition will increase Toronto-based AGF’s total assets under management to more than $51 billion, boosting its retail mutual fund assets to about $26.2 billion. Acuity currently manages approximately $7.4 billion for retail, institutional, and high net worth investors.
Reforms are needed to restore the asset-backed securities (ABS) market, which suffered a major setback during the financial crisis that began in 2007, says a study by the C.D. Howe Institute. In 'The Canadian ABS Market: Where Do We Go From Here?,' authors David C. Allan and Philippe Bergevin says while ABS’ role in the broader market collapse has been well documented, North American policymakers have readily acknowledged that this market must play a major role in the global economic recovery and policymakers recently have moved from addressing the urgent restarting of the ABS market to considering its reform. Specifically, it would be prudent in the Canadian context to impose new disclosure requirements for all public market medium-term note issuance, not just for those wishing to access the market through a shelf offering. The study is at http://www.cdhowe.org/pdf
Public and private foundations should be investing at least 10 per cent of their capital in “mission-related investments” by 2020, says the Task Force on Social Finance report on impact investing. The task force on investing for social benefit, not just financial returns, report makes several recommendations for governments, investors, and other organizations for fostering impact investing in Canada. Impact investing is defined as proactively investing in businesses, organizations, or funds that generate both a social or environmental and financial return. The task force says. “Successful implementation of this strategy will rely on the experience and know-how of our own pioneers like Chantier de l’économie sociale in Quebec, as well as the collaboration of leading financial institutions and foundations, together with federal and provincial/territorial governments and, of course, impact investors.”
Investor Confidence Rises In November
Globally, investor confidence rose 9.3 points in November from October’s revised reading of 88.2 to 97.5, says State Street Global Markets. In North America, confidence rose a robust 12.2 points to 97.1 from October’s level of 84.9. Investor confidence was also buoyant among European investors; with the index rising 15.9 points to 112.2 from October’s revised level of 96.3. In Asia, by contrast, institutional investors were more restrained, and confidence in that region declined by 8.0 points from a revised October level of 103.2 to 95.2 in November.
BofA Merrill Lynch Global Research has introduced the Global Financial Stress Index (GFSI), a cross-market gauge of risk, hedging demand, and investment flows. The index is designed to help investors identify market risks earlier and more accurately than commonly used risk indicators such as the VIX index. The GFSI composite index aggregates moe than 20 measures of stress across five asset classes and various geographies, measuring three separate kinds of financial market stress: risk, as indicated by cross-asset measures of volatility, solvency, and liquidity; hedging demand, implied by the skew of equity and currency options; and investor appetite for risk, as measured by trading volumes as well as flows in and out of equities, high-yield bonds and money markets.
Tuesday, November 30, 2010
State Street Corporation's latest Vision paper, 'Life Insurance: Focused on Growth,' examines the opportunities and challenges facing the life insurance industry. It assesses the current life insurance landscape and highlights growing changes in client needs. It also explores solutions to the urgent challenges the life insurance industry is experiencing as demographics shift and markets evolve. "Around the globe, retirement savings needs are rapidly changing and a new lifetime savings industry based on a more holistic, lifelong approach is taking shape to meet those needs," says Wade McDonald, head of client management and sales for State Street's global services business in the UK, Middle East, and Africa. "To compete effectively in this new environment, life insurers must look holistically at product offerings and develop financial products that deliver performance, manage risk, and provide value."
Manulife Financial Corp. and the private markets investment arm of Ontario's OPTrust are part of a group that plans to invest up to $2.1 billion in energy infrastructure and gas storage and delivery assets in the United States. Manulife, though its John Hancock subsidiary, will invest up to $450 million and OPTrust Private Markets Group will invest up to $400 million in two real estate investment trusts - the Electric Infrastructure Alliance of America and the Gas Infrastructure Alliance of America. As part of the deal, the trusts will acquire an interest in Sharyland Distribution and Transmission Services, an affiliate of Hunt Power, that will own five line segments and four substations that have been proposed.
Investments that aim to create a positive social or environmental impact are emerging as a new asset class, says a report from J.P. Morgan and the Rockefeller Foundation. The report estimates that the opportunity from impact investing is between US$400 billion and US$1 trillion, with profit potential between US$183 billion and US$667 billion over the next 10 years in five sectors - affordable urban housing, rural access to clean water, maternal health, primary education, and microfinance. It indicates that these sorts of investments are typically made in private markets by providing debt or equity to mission-driven businesses and that this has gained traction among a wide range of investors including pension funds.
Monday, November 29, 2010
The federal government is putting on hold a policy change that potentially could hurt low-income seniors. The change would have hit seniors who make lump-sum withdrawals from their registered retirement income funds, known as RRIFs. The policy called for these withdrawals to be considered income for tax purposes which would keep some low-income seniors from qualifying for Guaranteed Income Supplement payments.
Human Resources Minister Diane Finley says the policy shift will be shelved pending a review of its impact on seniors.
The Ontario Teachers’ Pension Plan has updated its Corporate Governance Policies and Proxy Voting Guidelines for the 2011 proxy season. New this year are guidelines on director independence, independent auditors, and dual-class share structures. There are also revisions to its guidelines on say-on-pay and director elections.
The creation of more workplace pensions must be the top priority in the EU, says the European Federation for Retirement Provision (EFRP). It says this should take priority over upgrading, or fine-tuning, pensions regulations. The EFRP says only 40 per cent of EU working citizens have employer-based pensions in operation. One reason for the low proportion of workplace pensions schemes was the fact that small companies – the most common employers – lacked the resources to provide them.
January Interest Rate Assumptions
The interest assumptions required to calculate commuted values for an event which occurs in any month up to and including January 2011 are now available at www.an-actual-actuary.com. An Excel spreadsheet on the website contains six worksheets:
- Commuted Values – 2009 Basis
- Commuted Values – 2005 Basis
- Commuted Values – 1993 Basis
- Marital Breakdown – CSOP 4300 (May 2009)
- Annuity Proxy for Solvency Calculations for Non-Indexed Pensions and Fully Indexed Pensions
- Minimum Interest on Employee Required Contributions (including the 12 month average rates)
Friday, November 26, 2010
Boosting CPP and QPP benefits and premiums could cost the Canadian economy 1.2 million person years of employment in the short-run and force wages down roughly 2.5 per cent in the longer term, says a Canadian Federation of Independent Business (CFIB) study. "The reality of putting more of today's earnings aside for tomorrow is that more of today's spending power will be put aside as well," says Ted Mallett, the CFIB's chief economist and vice-president. The Canadian Labour Congress has suggested that gradually doubling CPP/QPP benefits works out to just $3.57 per week increase in premiums for a worker earning $47,200. However, the CFIB points out that employers would have to match their employees' premiums and that the increase would take place each year for seven years. "While touting to save more people from the risk of pensionless retirement, proposals such as that of the CLC substantially underestimate the cost to the economy," says Mallett. The true cost of doubling benefits would be closer to $2,600 per employee per year once the CLC's seven-year plan is fully phased in. Although the economy eventually recovers, it takes decades for the gradual increase in benefits to have any real impact on retirees' spending power. "Before Canadians become too excited by CLC's proposal, it is also important to understand that no one would receive the full doubling of CPP benefits for 40 years," Mallett added.
The significant minority of middle class Canadians who have not put enough away for retirement and are banking on their home to provide a retirement nest egg may be fooling themselves, says Ontario’s finance minister. Speaking at the CPBI Ontario ‘Annual Pension Summit,’ Dwight Duncan said suggested that this is a bit of a “crap shoot.” While boomers may start selling their homes soon to pay for their retirement, there is a smaller cohort coming along to purchase these homes. He said there is a need for attitudinal changes in society as this generation doesn't save like their parents, have no workplace pensions, and fail to maximize the tax deferrals offered by RRSPs. The end result may be that as they age, they may become a social issue if they are unable to provide for themselves.
The government of Ontario will introduce amendments to the Retail Sales Tax Act (RSTA) and the Corporations Tax Act (CTA) to provide for a new form of benefits plan to be called a ‘qualifying trust,’ says Aon Hewitt’s ‘The Monitor.’ Definitions in both acts would include conditions similar to the definition of the employee life and health trust contained in federal Bill C-47, Sustaining Canada's Economic Recovery Act. To encourage large contributions to independent benefit plans, employers would be allowed to elect to pay tax as benefits are paid instead of when contributions are received. This would apply in cases where the funds in the plan exceeded the amount required for the payment of benefits foreseeable and payable within three years. The qualifying trust would come into existence when it contained contributions that exceeded three years worth of benefits payable to members, unless otherwise prescribed.
Attendance management programs themselves are not discriminatory; they just need to be carefully designed and properly applied, says Fasken Martineau ‘The HR Space’ in the B.C. Court of Appeal decision in a battle over an attendance management program covering transit operators in the Greater Vancouver region in British Columbia. The court has determined that certain aspects of Coast Mountain's attendance management program systemically discriminated against disabled employees. It found that while the employer could communicate its attendance expectations and the possible consequences if the employee did not meet those expectations, its attendance expectations were based on the average absenteeism rate of Coast Mountain's transit operators. In calculating the absence rate of the employee, days missed for short-term disability, long-term disability, and workers' compensation claims were counted as absences. Unfortunately for employers, the court found that including absences due to short-term disability, long-term disability, and workers' compensation claims in calculating absenteeism was discriminatory. The good news for employers from this decision is that attendance management programs are not discriminatory. However, employers need to consider the specific circumstances of disabled employees, including how their disability may affect future attendance. As well, absences of disabled employees that are due to their disabilities should not be treated the same as absences of non-disabled employees that are not attributable to a disability.
Aviva Investors and Henderson Global Investors have collectively committed around €60 million in equity to Standard Life Investments’ European Property Growth Fund. Launched in 2001, the fund currently has a gross asset value of approximately €766 million and comprises 38 assets in 10 countries across Continental Europe. It is structured as a semi open-ended English Limited Partnership providing sophisticated investors with exposure to direct continental European real estate through income producing investments and, to a limited extent, development opportunities. Aviva and Henderson join 32 other global institutional clients in the fund.
Two HOOPP office buildings have won design awards. AeroCentre V, a green office building developed by HOOPP in Mississauga, ON, has won an Award of Excellence in the 2010 Mississauga Urban Design Award competition. The Telus House Tower building in Toronto, ON, has won a bronze medal in the Design Exchange (DX) Award in Commercial Architecture. Both buildings are leading-edge in terms of their environmental design. The AeroCentre V, home to PepsiCo, is an example of a suburban infill project since it was built on already developed land. Through the use of natural light, the building uses more than 50 per cent less energy than a conventional building. And, even more uniquely, the building has windows that can be opened and closed. The Telus House Tower has floor to ceiling glass windows which offer ample natural light and the building features an on-site wellness facility.
What steps investors, regulators, government, and industry participants should be taking to enhance investor protections will be the focus when Margaret Franklin, chair of the board of governors of CFA Institute and president and CEO of Kinsale Private Wealth, speaks to the Canadian Club of Toronto. She will make the case that Canada’s track record of holding rogue advisors accountable is detrimental not only to investors, but Canada’s capital markets as a whole. It takes place January 13 in Toronto, ON. For more information, visit www.canadianclub.org
The current B.C. drug reform and the impact of government program changes, including a review of historical cost management strategies and how plan sponsors need to adapt in the future, will be the focus of a CPBI Pacific session. It will also look at underwriting group plans and accounting for post retirement plans, benefit cost drivers, international and out-of-country benefits, and employee life and health trusts. It takes December 9 in Vancouver, BC. For more information, visit www.cpbi-icra.ca
Senior level speakers from Voltan Capital Management, BMO Capital Markets, Olympian Capital Management, Brockhouse & Cooper, Acorn Global Investments, Guardian Capital, ITG Canada Corp., and Highstreet Asset Management will be featured at ‘TradeTech Canada 2010.’ Sessions will look at strategies and best practices in managing buy/sell side relationships, trading, and regulatory changes. It takes place December 6 and 7 in Toronto, ON. For more information, visit www.tradetechcanada.com
Thursday, November 25, 2010
Ontario is convinced that enhancing the Canada Pension Plan is the logical solution for pension coverage issues, says Ontario’s finance minister. Speaking at the CPBI Ontario ‘Annual Pension Summit,’ Dwight Duncan said most provinces support enhancement. However, Alberta has said it opposes the move and all it would take to put the “kibosh” on it is to have Quebec and Alberta joining together to oppose it. Duncan restated his position on an enhanced CPP despite reports that Ted Menzies, parliamentary secretary to federal Finance Minister Jim Flaherty, has said the provinces have unanimously ruled out a voluntary supplemental CPP.
Canada has a number of large pension funds that have been undertaking merger and acquisition activities directly around the world, says Daniel Daviau, managing director, head of Canadian investment banking, Canaccord Genuity. Speaking at the CVCA – Canada's Venture Capital & Private Equity Association’s ‘Going Global: Strategies to Access Capital and Opportunities from the U.S. and Abroad,’ he said these are large, sophisticated, active funds that are searching for the best returns globally. As well, generally companies prefer talking with them as they bring a long-term focus and are management friendly.
General Motors Co.’s combined contributions to its U.S. pension plans could range from $5.1 billion to $14.7 billion from 2012 through 2015, says a Securities and Exchange Commission filing. The amount of the contributions depends on variations in projected investment return on its $85.9 billion U.S. pension fund and discount rate. For its U.S. pension plan, GM uses an assumed expected long-term investment return of 8.5 per cent and a 5.52 per cent discount rate. It could contribute $500 million in 2012, $100 million in 2012, $3.9 billion in 2014, and $5.4 billion in 2015, if its U.S. pension assets annual investment return is 8.4 per cent. But if the return falls to 7.4 per cent, contributions would rise to $800 million in 2012, $200 million in 2013, $4.1 billion in 2014, and $5.7 billion in 2015.
Any move to improve the Canada Pension Plan to provide enhanced benefits to Canadians needs to ensure existing plans are not harmed, says Jennifer Brown, executive vice-president and chief pension officer, OMERS. She told the CPBI Ontario ‘Annual Pension Summit’ there are implementation issues such as how will any additional funds coming into the CPP will managed. The best approach is to use additional managers and a competitive process should be used to identify these managers. As well, any improvements should be phased in so they can be assessed to see if they have intended effect.
AbitibiBowater Inc. will maintain its four U.S. Defined Benefit pension plans as the company emerges from Chapter 11 bankruptcy proceedings, says the PBGC. The four U.S. plans have combined assets of $508 million.
While OMERS does not set specific targets for each sector, it does take an opportunistic approach to private equity investment, says Paul Renaud, president and CEO, OMERS Private Equity. And while it has always been overweight in Canada, it is just as matter of time before the U.S. is the biggest part of its portfolio, he told a CVCA – Canada's Venture Capital & Private Equity Association’s ‘Going Global: Strategies to Access Capital and Opportunities from the U.S. and Abroad’ in a session entitled ‘Where is Canadian Capital Being Invested?’ OMERS tends to focus on the operative side. It looks for well-managed businesses where it knows management and shares the view of management on how the business can be grown going forward. It is not, he said, a turnaround specialist.
When we look at legislation for pension plans, it needs to reflect that pension plans are long-term, risk-sharing vehicles, says Josephine Marks, managing director, pension assets, Scotiabank. However, she told the CPBI Ontario ‘Annual Pension Summit’ this has been forgotten and led to some of the problems of the past and today. And while no single group should bear the brunt of “how we got into this situation,” the blame lies with actuaries who failed to explain clearly how risk works, lawyers who made the mistake of applying trust laws to pension funds, and accountants who want to use mark-to-market rules. Reform requires a change in thinking, she said, and a recognition that they are a pension promise. Plans themselves need to restate their objectives relative to their liabilities, not other pension plans.
Wednesday, November 24, 2010
Given the nature of plan obligations, a Defined Benefit pension plan will require investment management for a number of years after it is frozen or closed, says Philip Morse, a principal at Towers Watson. He told an ACPM 'impACT 2010' session on 'Defined Benefit Pension Plan Freezes – Considerations for Plan Design and Transition Management' that unless the sponsor is considering full termination and settlement, a core DB liability, unless impacted by plan design, will last for decades. For example, after 10 years, the DB obligation could still be at 80 per cent and at 60 per cent after 20 years, so you have to put in risk management strategies for a lengthy period of time, he said. As well, the sponsor will need to continue to manage assets, records, and members for the remaining life of the plan or until the group shrinks enough that it can be outsourced.
The committee that advises the federal government on compensation for executives in the public service is planning a "deep dive" valuation of their pensions to get a clearer picture of what they're worth. The committee wants to get a handle on the full value of pensions, which are a key piece of the compensation package for public service executives. The committee, which reports to Treasury Board President Stockwell Day, acknowledges the value of federal pensions for executives is not well understood. Pension benefits as a proportion of total compensation are ostensibly higher in the public service to make up for lower salaries, especially among top-ranking jobs such as deputy ministers or heads of agencies.
Designing Defined Benefit pension plans where the pension benefit is not skewed to employees whose salary increases are higher could offer an alternative for employers concerned about the adequacy of Defined Contribution plan benefits, says Charlene Moriarty, a principal at Morneau Sobeco. Speaking at the ACPM's 'impACT 2010' on 'Re-thinking Career Average Plans – Some Innovative Twists On Traditional Design,' she said final average plans with rich benefits do not lend themselves to risk minimizing investments as salaries are difficult, if not impossible, to match in the investment market. She outlined a prototype DB plan as an alternative which would offer floor retirement income protection for employees. The prototype plan, she said, would have no ancillary benefits, a low to moderate benefit formula, and offer an employee flex component to fund an upgrade to a final average benefit. Advantages for employers are that they feature lower volatility and enable risk minimization as well as stable funding.
Canada is in a “sweet spot” for developing trade relations with emerging markets, says Dr. Sherry Cooper, executive vice-president and chief economist for BMO Financial Group. Speaking at the BMO Group Retirement Services ‘First Anniversary Celebration,’ she said emerging markets are growing rapidly and in need of agricultural and manufacturing products. Canada is ideally positioned to provide these countries with, for example, potash an ingredient in the production of fertilizers. And, with the U.S. economy only slowly coming out of a downturn, now is an ideal time for Canada to look for other trading partners, she said. Delinking the Canadian economy from the U.S. would mean it is less dependent on U.S. demand.
Defined Contribution pension plan sponsors who realize their members do not have enough to retire – and who don't understand that they don't have enough – may want to move to target benefit plans, says Jill Wagman, a principal at Eckler Ltd. In the ‘Target Benefit Plans – An Option for Single Employers’ session at the ACPM’s 'impACT 2010,' she said while they don’t really exist yet, the multi-employer plan concept uses a target benefit plan approach and they have been around for years. The advantage of these plans for employees is that they provide certainty over surplus ownership and give employees a say in the governance of the plan. For employers, they promise cost certainty and do away with solvency funding concerns because when there is a shortfall, the benefit can be reduced. The Ontario Pension Reform Commission has recommended they be set up. However, she said there are still some obstacles including an Ontario requirement which says an agreement with employees needs to be in place. At this time, that would seem to suggest that they would only be available in union environments where the terms of the plan could be set by collective bargaining.
The Ontario Teachers' Pension Plan has shed itself of most of its holdings in Maple Leaf Foods Inc. with the sale of 55.5 million shares to two investment banks. This follows the sale of 13.7 million shares to West Face Capital in August. It leaves Teachers with a stake of just under 10 per cent in Maple Leaf.
Early adopters of new products such as longevity swaps will be the ones who benefit as the insurance industry only has a limited capacity to offer them, says Peter Muldowney, of Sun Life Financial, speaking at the 'impACT 2010' session ‘New Life, New Thinking for DB Plan Risk Management.’ While longevity swaps are not available in Canada yet, they are a means for sponsors to de-risk their Defined Benefit plans. Under these products, a company would pay a premium each year to an insurer who would then make the pay-outs to retirees. However, other products such as buy-in and buy-out which see variations of assets and liabilities transferred to insurance companies which then hedge the interest rate and longevity risk are available in this country. Muldowney said longevity is a one-sided bet as people are expected to live longer. However the question for sponsors is whether this risk is reflected in their current pension liabilities. Sponsors need to add longevity to the issues they talk about when discussing de-risking their plans.
The federal Liberal would establish a Supplemental Canada Pension Plan (SCPP) in its effort to reform the Canadian pension system. Its white paper, ‘Canadian Pension Security, Adequacy and Coverage; Public Policy Challenges and the Baby Boom Generation,’ says Canadians have come to trust the Canada Pension Plan which is seen and accepted as a safe and dependable retirement savings vehicle. The establishment of a voluntary SCPP would build upon that trust while allowing Canadians to set aside extra, when possible, in a vehicle that promises a return. As well, it would also permit small businesses to offer employee pension contributions without the administrative or underwriting expenses associated with traditional pension plans. It would also create a stranded pension agency. This would serve as a form of public pension trustee for pension plans financially impacted as a result of corporate insolvencies.
Standard Life has revamped the life statement that group savings and retirement plan members will receive starting January 2011. The revamped statement highlights the information members need in order to make informed decisions about their retirement income planning. The first page provides an overview of the group savings and retirement plan and members will be able to immediately see if changes need to be made to their personal profile, understand why, and make some adjustments when necessary. Customized messages and suggestions will encourage members to move from passive to active mode.
The average 401(k) retirement account balance rose 31.9 per cent in 2009, says a report from the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI). ‘401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2009’ shows retirement savers, by continuing to invest paycheck-by-paycheck, saw the benefits of being in the market in 2009, as stock values generally climbed during the year. Though the average 401(k) account balance fluctuated with stock market performance, it reached $109,723 at year-end 2009, up from $61,106 at year-end 2003. By way of comparison, in 2009, the Standard & Poor’s 500 stock index rose 26.5 per cent, while the Russell 2000 index (measuring the small-cap segment of the U.S. equity universe) rose 27.2 per cent. The full database analysis shows that 401(k) participants continued to seek diversification of their investments. The share of 401(k) accounts invested in company stock continued to shrink, falling by half of a percentage point to 9.2 per cent in 2009. That continued a steady decline that started in 1999. The bulk of 401(k) assets continued to be invested in stocks. On average, at year-end 2009, 60 per cent of 401(k) participants’ assets were invested in equity securities through equity funds, the equity portion of balanced funds, and company stock and 36 per cent were in fixed income securities.
Lawsuits alleging that 401(k) plan investment fees are too high and have not been monitored by plan fiduciaries or disclosed to participants have been in the spotlight for some time. Although plaintiffs have not been prevailing in this litigation, there is still the potential for such cases, or for Congress or the Securities & Exchange Commission to make new law affecting plan fees. However, new regulations recently finalized by the United States Department of Labor have already changed the law by imposing new disclosure obligations not just on those who administer 401(k) plans, but on a large group of plan administrators and service providers, says an Osler, Hoskin & Harcourt LLP ‘Update.’ It suggests a number of steps plan sponsors can take to mitigate their legal risk. For example, they should request that fees be expressed as a percentage of plan assets as well as a dollar amount and they should monitor asset-related fees on an ongoing basis to make sure they do not become disproportionate as assets increase. As well, fee review should be placed on the plan committee’s agenda on a regular basis and the results of that review documented. If an investment or a service provider with superior performance and higher fees is selected, the analysis that resulted in that decision should be documented.
The Canada Pension Plan Investment Board and APG, a Netherlands pension administrator, are buying a 50 per share in a retail development in London, UK. Westfield Stratford City is situated adjacent to the site of the 2012 London Olympics. About 70 per cent of the estimated 10 million Olympic attendees will pass through the site on their way to the games. The retail shops are scheduled to be completed in the third quarter 2011.
The ‘CAIA Canada Holiday Prognostications Event’ will provide its members and candidates with an opportunity to learn what industry leaders are identifying as trends for 2011. It will feature Peter Gibson, head of portfolio strategy and quantitative research, CIBC; Richard Rémillard, executive director of the CVCA; Terence Yuen, senior economist at Towers Watson; and Hazen McDonald, fixed income portfolio manager, Investors Group. It takes place December 8 in Toronto, ON. For more information, contact email@example.com
Working with Defined Contribution and Capital Accumulation Plans will be the focus of a session at Osgoode Professional Development program’s ‘6th Annual Essential Course in Pensions.’ Susan G. Seller, of Bennett Jones LLP, and Marc Poupart, general manager, pension and retirement programs at Hudson’s Bay Company, will examine areas such as plan texts and service agreements, as well as compliance/governance issues. It takes place November 30 to December 1 in Toronto, ON. Visit: http://www.osgoodepd.ca/clehome_list.html
Monday, November 22, 2010
Quebec is expanding access to the Régie des rentes du Québec (Régie) for members of pension plans of insolvent or bankrupt employers, says a Towers Watson ‘Client Advisory. Bill 129 builds on legislation adopted in 2009 and will allow former Quebec employees of companies such as Nortel to transfer their pension to the Régie for administration. The Régie Option will be attractive to eligible members and beneficiaries because pensions initially reduced on the plan termination date cannot be further reduced and could possibly be increased if the portion of the plan assets administered by the Régie experiences actuarial gains. However, Quebec taxpayers will assume the risk of actuarial losses and any resulting funding deficiencies. The bill also makes a number of other amendments to the Supplemental Pension Plans Act including allowing the use of letters of credit for employers participating in a multi-employer pension plan and giving the Régie the power to order the split of a multi-jurisdictional pension plan (one in which there are participants from more than one province) to isolate the Quebec portion.
AbitibiBowater has entered into agreements with the government of Ontario related to funding relief in respect of the material aggregate solvency deficits in the registered pension plans the company sponsors in Ontario and Quebec. The agreements will enable the company to seek the waiver of the conditions, as detailed in its restructuring plans, regarding the adoption of funding relief regulations. It reached a similar agreement with the government of Quebec in September. The agreements mean that the company will meet its future pension obligations in full to the beneficiaries.www.connexhc.com
Friday, November 19, 2010
General Motors is now is a position to fully fund its pension plan, says its chief financial officer. Chris Liddell says this was one of the automaker's goal heading into the launch of an IPO. "We are in a good position to do that over the next few years," says Liddell. The start of trading in GM shares is one of the final steps in an initial public offering process that raised $20.1 billion in common and preferred shares, making it the biggest IPO in U.S. history. It caps the first stage of a turnaround that has taken the 102-year-old automaker from near-death in 2008. A government bailout in 2009 left the U.S. Treasury with a 61 per cent stake in the automaker. Now, after IPO, the U.S. government share could drop to 33 per cent.
While there is a great deal of investor optimism about emerging markets, Ben Kottler, institutional portfolio manager at MFS Investment Management, says there are also reasons for caution. In the long term, he told its ‘2010 MFS Fall Investment Seminar,’ the economic fundamentals are strong. However, equity returns have not always correlated with GDP growth due in part to dilution and concerns about poor governance. The question, he said, is whether it is different this time. Favourable demographics are setting the stage for sustainable growth and most have lower levels of debt versus developed markets. As well, over the past decade there has been a positive correlation between economic growth and market performance. And while emerging markets equity investors have not always been compensated for volatility, higher returns in the past decade have compensated for additional risk and volatility has started to come down.
In two decades, in-vitro fertilization (IVF) will become a standard way of reproducing among Canadians, author Maureen McTeer predicted. Speaking at an International Society of Certified Employee Benefit Specialists (ISCEBS) seminar on medical decision-making in the 21st century, McTeer discussed how women are increasingly choosing to establish careers before starting a family, which is driving up the average childbearing age. With age the number one cause of infertility, many will turn to the promising benefits IVF technology is delivering. Although covered only by the private sector – except for Quebec, which provides government-funded treatments – all public healthcare systems across Canada will be impacted, she says. The various associated costs of IVF, such as the higher probability of multiple or premature births, will require considerable support from public and employer-sponsored healthcare plans as treatments become more popular.
The Healthcare of Ontario Pension Plan (HOOPP) and Desjardins Group are among 10 national winners in the ‘2010 Canada’s Most Admired Corporate Cultures’ competition. “This is a real honour for everyone here at HOOPP,” says John Crocker, president and CEO. “It speaks to the fact that we all put the needs of our clients first – the more than 250,000 Ontario healthcare workers who depend on us for pension benefits in retirement.” Crocker went on to say that “ours is a culture of caring – caring for the financial future of those who care for us.” Monique F. Leroux, chair of the board, president, and CEO of Desjardins, says its business culture “is much more than innovative practices to mobilize our human capital, which is our greatest asset. Our culture is particularly one of participation and democracy, which are characteristic of the governance style of our co-operative group, leadership in financial education, and in sustainable development, support for gender equity, and people’s community involvement.” Marty Parker, president and CEO of Waterstone, said “this year’s winners are truly outstanding – unique and vibrant high-performance organizations. They each exemplify something we at Waterstone have always known: that great people create great cultures, and great cultures create a competitive advantage that generates outstanding results – in both good times and bad.”
Global Equity Takes Bigger Share
Global and international equity are taking a bigger share of the shrinking equity allocation, says Betsy Palmer, senior managing director at MFS Institutional Advisors, Inc. Speaking on ‘Asset allocation: Where do we go from here?’ at the ‘2010 MFS Fall Investment Seminar,’ she said this trend is taking place in Canada and elsewhere. The benefits are that it helps to diversify overall portfolios and takes advantage of opportunities outside of home country. However, as the recent financial crisis showed, diversification does not help during times of market stress. Allocations are also increasing to fixed income, she said. However, this was taking place before the financial crisis started. And while fixed income does provide liability matching and addresses liquidity and volatility concerns, there is some concern about its ability to provide sufficient returns.
The Caisse de dépôt et placement du Québec has made a $7.8 million equity investment in Investissement BSA Inc. (BSA). This investment will support its Canadian and international expansion projects. BSA is a technical service leader in the food and meat processing industry in Québec, Ontario, and the Maritimes.
RBC Dexia Investor Services has been appointed by SEI Canada to provide shareholder recordkeeping services for SEI's 19 portfolio programs and 31 mutual funds in Canada, representing more than $9 billion in client assets. James Morris, senior vice-president for SEI Global Wealth Services in Canada, says its “consultative approach along with its dedication to service excellence was apparent in every step of this competitive selection process."
Security holders of Intoll Group, an Australian infrastructure company with a stake in Canadian and Australian toll roads, have approved a takeover by the Canada Pension Plan Investment Board. Through the deal, CPPIB will take a 30 per cent stake in toll roads including the 407 highway which runs across the top of Toronto, ON. After the transaction closes, CPPIB will remake Intoll into a private company.Ninety per cent of Canadian employees believe their employer has a role in cancer prevention, so the workplace is an ideal place for screening and education, says Dr. Alain Sotto, chief physician at Ontario Power Generation. Sotto discussed what goes into an effective at-work prevention program at an International Society of Certified Employee Benefit Specialists (ISCEBS) seminar. Tips on getting the ball rolling include obtaining executive endorsements for a workplace program, finding popular cancer-screening advocates, and creating a corporate cancer tool kit for managers. Sotto also suggested creating a corporate cancer prevention standard, with help at www.controlcancer.ca; or helping employees understand their risk for cancer through the online cancer assessment tool, www.yourdiseaserisk.wustl.edu
The Ontario government will introduce rules to make the largely unregulated domestic derivatives market safer and more transparent. A report in the Globe and Mail says under the proposed legislation, the Ontario Securities Commission would supervise bankers who trade derivatives by requiring them to register with the regulator. The commission would also create an open market similar to a stock exchange for trading credit default swaps and other instruments now bought and sold privately between banks. Derivatives are specialized contracts which signify an agreement or an option to buy or sell the underlying asset at a certain time in the future at a prearranged price, the exercise price. After the financial crisis in 2008, derivatives were identified at a potentially weak link in the system and global financial regulators started looking to put tighter controls on the trades and traders.
Directors of offshore hedge funds are frequently “under-qualified” and “over-stretched,” says research from HedgeDirector, an independent consultant. It reviewed the role of the non-executive director in the hedge fund industry and found significant failings in the service provided. The report concludes that hedge fund investors need to become more vocal on this issue and insist upon professional standards of oversight from the offshore boards. Kevin Ryan, HedgeDirector’s founder, argues that the reforms being enacted in traditional fund governance, following the Walker report in the UK and Dodd-Frank Act in the U.S., should equally be applied to the world of alternative investments. As institutions, such as pension funds, allocate a greater percentage of their portfolios to hedge funds, they have to demand the same ‘best practice’ governance from their hedge fund boards as they do from their traditional investments. The report can be found at www.hedgedirector.com
Prominent pension schemes are among 30 founding members of the Hedge Fund Standards Board’s investor chapter. The pension fund members are BT Pension Scheme Management; Caisse de dépôt et placement du Québec; Future Fund Australia; Sweden's PP Pension; Railpen Pension Investments; and Utah Retirement Systems. The board was established as a voluntary global standard setting body in January 2008 to promulgate and promote good practices for hedge funds and investors in them. Mario Therrien, senior vice-president for fund management at the Caisse de dépôt, has been appointed to the board of trustees.
Institutional bond investors in the UK are increasingly likely to suffer amid the ongoing debt crisis and should seek safety in secured assets, says a report from M&G. It says investors who can add value while avoiding "heroic" decisions during the current environment are those who are likely to do well. It notes that in every debt crisis in history, someone takes “the pain.” In the past few years, it has been the taxpayer and now bondholders look like they are in the firing line. The pain may not be as obvious as an outright default on risky Greek bonds. It could come from a Bank of England policy error, with resulting inflation eroding the value of UK gilts. Or, if the market starts to punish Europe's many undercapitalized banks, many corporate bonds could also fall in value.
Losses stemming from climate change may trim as much as 20 per cent from global economic output by 2050, says Ceres, a coalition of environmental groups and investors including Deutsche Bank AG and the California Public Employees’ Retirement System. They are urging policy-makers to combat global warming or face mounting economic disruptions in the next 40 years. Countries must set a price on carbon-dioxide pollution, cut emissions, adapt to climate change, and embrace policies to spur use of renewable energy, it says.
The hedge fund industry has recovered the assets it lost during the height of the credit crunch two years ago, says Eurekahedge. Industry assets stand at $1.63 trillion, a level last seen in October 2008. Last month was the fourth consecutive month where hedge funds made money and this year they are up 7.3 per cent. As well, more than 600 funds have launched this year.
Integrated Asset Management Corp. and its real estate arm, GPM Investment Management, have launched of GPM (12), the 12th fund in its series of pooled real estate funds. Like the previous 11 funds, GPM (12), which is targeted to raise between $150 and $200 million, will be a closed-end, discretionary fund focusing on industrial properties in the GTA, ON; Ottawa, ON; Edmonton, AB; Calgary, AB; Vancouver, BC; Montreal, QC; and Halifax, NS; markets.
Mercer (Canada) Limited has announced a number of appointments to its investment team. Heather Cooke is the implemented investment solutions leader for Canada. Based in Toronto, ON; she is responsible for its implemented consulting and dynamic de-risking offering. Nathalie Bockler is eastern market business leader. She has more than 20 years of experience in the financial sector having worked with Societé Générale, as well as with BNP-Paribas and Crédit-Lyonnais. Peter Hallett is senior investment consultant for its Western Canadian investment consulting business. He spent the past five years with Dimensional Fund Advisors. Robert Leblanc is director, client relationships, for the eastern market for both the investment consulting and investment management businesses. He has more than 25 years of experience in actuarial consulting and business development for institutional pension investments.
Ruo Tan is managing director, investment counsel, at Rogerscasey. He was most recently vice-president, manager research and portfolio strategy, at TD Wealth Management. He has also worked as a member of the executive team for CIBC Wealth and as an officer of CIBC Asset Management Inc.
CPBI Ontario’s ‘Pension Investment Forecast: 6th Edition’ will feature five investment professionals who will share their experiences and personal views on how to profit from the post-crisis world. The keynote address will be made by Roland Lescure, chief investment officer at the Caisse de depot & placements. Other speakers are Bo Knudsen, of Carnegie AM; Scott Nisbet, Baillie Gifford; Sean Rogister, Marquest Fixed Income Management; and Julian Mayo, Charlemagne Capital. It takes place January 18 in Toronto, ON. For more information, visit www.cpbi-icra.ca/http://www.conferenceboard.ca
Wednesday, November 17, 2010
A gradual increase in retirement ages would increase the CPP's assets by $982 billion by 2050, says a research paper from the Mowat Centre for Policy Innovation by Martin Hering, an assistant professor in the department of political science at McMaster University; and Thomas Klassen, an associate professor in the department of political science and the school of public policy and administration at York University. With Canada is in the midst of a debate on how to ensure Canadians have adequate retirement income, ‘Is 70 the New 65? Raising the Eligibility Age in the Canada Pension Plan’ says public policies – including the eligibility ages for the Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) – favour low retirement ages and access to early retirement benefits. Raising the eligibility ages in the CPP and QPP from 65 to 67 (and earliest ages for collecting benefits from 60 to 62) would provide governments with the policy flexibility to ensure Canadians have adequate retirement income and help ensure that the fiscal costs associated with labour market shortages and longer life expectancy are borne more equitably across generations.
A campaign for “real” pension reform has been launched in Alberta to persuade the provincial government to change its mind and join the growing consensus around expanding the Canada Pension Plan (CPP). "A crisis in retirement income is looming in Canada and it will not spare Albertans, despite claims made by Finance Minister Ted Morton," says Gil McGowan, president of the Alberta Federation of Labour (AFL), which launched the campaign with the Canadian Labour Congress (CLC). He says Alberta is acting as a spoiler and standing in the way of real reform. A poll released by the AFL shows that Morton is out of step with Albertans when he claims they don't want or need CPP expansion – and that any reform should be left to private industry.
Emerging markets have truly emerged, says Brett Gallagher, deputy chief investment officer and senior portfolio manager at Artio Global Investors. Speaking at its ‘The World Turns: The Dawn of a New Economic Hierarchy’ luncheon, he said that the return history of emerging markets over any time period – one, three, five, 10, or 20 years – shows they have outperformed developed markets with the 20-year period key as it includes a period in the 1990s when they collapsed. This success has meant that emerging markets representation has grown dramatically, yet they are still under-represented relative to their importance to the work. Their stock market capitalization is around 13 per cent of total global market capitalization even though their share of global GDP is now more than 30 per cent. And the reason they are so expensive today, he said, is because they are in better shape financially “so we should be willing to pay more for them.”
Pension plan sponsors in Ontario need to consider what changes, if any, they need to make to their plans in advance of the coming into force of Bill 236 and the passage of Bill 120, says Peggy McCallum, of Fasken Martineau's pensions and benefits group. Speaking at its ‘Pension Reforms – Part II’ seminar, she said she expects regulations to spell out the details of the two Ontario bills should be released for public comment next year. The difficulty for plan sponsors is the fact that while Ontario has already released its second set of pension reforms, many sections of phase one of the reform, Bill 236, have not yet been proclaimed and many sections require regulations which have yet to be formulated. That phase of reform calls for changes such as immediate vesting, notice of all proposed amendments, and creating advisory committees for plan members. Sponsors have been promised elimination of partial wind-ups and less stringent rules for payment of surplus to employers on plan wind-ups. Phase two of Ontario’s reforms, Bill 120, takes steps to increase benefit security and clarifies and simplifies existing laws.
The Canada Pension Plan’s current legislated contribution rate is sufficient to meet the CPP’s future obligations, says the latest actuarial report on the CPP. The report finds that the legislated contribution rate of 9.9 per cent will mean total assets increase significantly over the next 11 years and then continue increasing beyond that, albeit at a slower pace. Total assets are expected to grow from $127 billion at the end of 2009 to $275 billion by the end of 2020. The ratio of assets to the following year’s expenditures is projected to grow from 3.9 in 2010 to 5.2 by 2050. At that rate, “contributions are projected to be more than sufficient to cover the expenditures over the period 2011 to 2020,” the report finds. Beyond that horizon, some investment income will be required to make up the difference between contributions and expenditures, so that by 2050, 29 per cent of investment income is required to pay for benefits.
Commit To Measuring Communications
To demonstrate the “real” value behind an employee communications plan, you need to make a commitment to measurement and be up front about your objectives, says David McCullagh, national practice leader, Buck Consultants. Speaking on how to maximize ROI for your communication efforts, he outlined measurements directly or indirectly associated with communications such as cost savings/cost avoidance, increased sales, employee satisfaction/retention/productivity, and management satisfaction. After identifying which measures are most important to management, you can tie those into the objectives of the communications plan, he said. For example, the success of a total rewards statement throughout a company – meant to enhance employee engagement – can be measured through polls, surveys, and year-over-year benefit participation statistics, McCullagh says.
The federal government is moving to a pension system that is more prescriptive, says Ross Gascho, of Fasken Martineau's pensions and benefits group. He told its ‘Pension Reforms – Part II’ seminar that this is being driven by 25 years of increased pension litigation. From this litigation, you can see the drivers of the rules and regulation being proposed in Bill C-9. He asked, however, where it is all going as the government seems to be trying to balance the needs of plan members and plan sponsors. Yet, there are areas which have not been addressed such as money purchase plan and RRSP limits.
Investment activity by Canada’s venture capital and buyout industry continued to pick up in the third quarter of 2010, says the CVCA – Canada’s Venture Capital & Private Equity Association. “Together, Canada’s private risk capital industry injected $1 billion of new capital into the economy in the third quarter.” says Gregory Smith, president of the CVCA and managing partner, Brookfield Financial. “This money is making a significant contribution to economic growth during a slowdown in the pace of the recovery in Canada.” For a second quarter in a row, venture capital (VC) market activity in Canada expanded in the third quarter with $261 million invested in total, or 20 per cent more than the $217 million invested the year before. Disbursements in the third quarter did not, however, approach levels recorded three months earlier, when $335 million was invested.
Summit Global Investor Services has formed a strategic alliance with First Actuarial LLP to provide an asset liability monitoring tool which utilizes both daily investment valuations and up-to-date estimates of scheme liabilities. Pension schemes can now use an online tool to get information across a range of areas including accounting, performance, risk, attribution, transactions costs, compliance monitoring, and investment strategy. The service will form part of a new suite of strategy services which will also include scenario analysis and stress testing.
International terminology, social security and mandatory plans, and benefit programs with choice will be among the topics covered at IBIS Advisors’ ‘2011 Institute.’ Sessions will also examine areas such as an introduction to multi-national pooling and cross-border benefit strategies for expats, TCNs, and business travelers. The summit looks at the HR and international compensation and benefits needs of multi-national employers. It takes place May 2 to 6, 2011, in Vienna, Austria. For more information, visit www.ibisacademy.com
Tuesday, November 16, 2010
The time has come to choose the winner between the two leading pension reform horses, says Keith Ambachtsheer, president of KPA Advisory Services Ltd. and director of the Rotman International Centre for Pension Management at the University of Toronto. Writing in a KPA ‘Pension Reform Update,’ he says each of the two approaches represents a feasible, but inherently complex design, implementation, and communication challenge on its own. “Trying to do ‘some of each’ may seem politically attractive, but would be unacceptably risky as a practical proposition,” he says. The super-complexity that would result from choosing a dual-track approach involving riding both pension reform horses would risk torpedoing the fruits of the years of research and debate that have gotten us to this point. There is now wide consensus that the primary target of pension reform should be the millions of Canadian middle-income, private sector workers who do not have an employer-sponsored Registered Pension Plan, he says. The two lead reform horses that have emerged to address this looming problem are expanding the CPP/QPP through raising the YMPE or raising the income replacement rate or some combination of the two and expanding supplementary pensions through a viable strategy that will enroll the target group into one or more cost-effective pension plans or retirement savings accumulation arrangements that would sit on top of the current public OAS/GIS/CPP/ QPP pension mix. In Ambachtsheer’s view, either strategy, properly designed and implemented, could propel Canada from its current fifth place ranking (according to the Melbourne Mercer Global Pension Index) in the global pension excellence derby to the top. “But we must choose. Trying to ride both reform horses to victory would be a losing proposition for all Canadians,” he says.
Compensation in the U.S. asset management industry is rebounding after two tough years, says a Greenwich Associates and Johnson Associates report. It says that moderate improvement in the business environment and year-on-year growth in assets under management is expected to push compensation levels higher across the investment management industry. Hedge funds, and professionals in that segment of the industry, were hit hardest by the global market crisis. It reports that as markets imploded in 2007-2008, average total compensation for senior hedge fund fixed income investment professionals declined more than 40 per cent, only to rebound by about the same amount from 2008-2009. On the equity side, average reported compensation for senior hedge fund professionals declined 44 per cent from 2007-2008 and then fell another 15 per cent from 2008-2009. Compensation for professionals at traditional asset management firms experienced far less volatility. It reports that average compensation levels among senior fixed income professionals at traditional funds and advisors declined by about five per cent from 2007-2008 and then jumped 53 per cent from 2008-2009. Those levels are projected to increase approximately 10 per cent in 2010. Average compensation for senior equity professionals increased 34 per cent from 2007-2008 and then held steady from 2008-2009. These levels are projected to increase 12 per cent in 2010.
Many Canadians are feeling better about their financial outlook this quarter as the capital markets enjoy a resurgence of late, says the Russell Financial Health Index (RFHI). “The results reflect the cautiously optimistic mood of investors as the capital markets made positive strides. For instance, the S&P/TSX Composite Index returned over 10 per cent in the third quarter of this year,” says Fred Pinto, managing director of distribution services. “Things are still unsettled, but we’re edging towards a recovering economy and a stock market that will continue to rebound in fits and starts.” Canadians remain most worried about having sufficient income for a desired lifestyle; leading an active and healthy lifestyle, and having a reliable source of income. In addition, the financial impact of medical issues and healthcare needs saw the largest drop in concern in the index during this period after reaching an all time high level of concern last quarter.
Anita Lieberman is vice-president, business development – Ontario region, for BMO Group Retirement Services Inc. A seasoned executive with 30 years of experience in the group retirement services industry, she has occupied a number of business development leadership and senior management positions at some of Canada's leading insurance companies. She will be based in Toronto, ON.
Monday, November 15, 2010
Pre-retiree participants who continuously held a 401(k) plan for the past 10 years more than doubled their account balances, says a Fidelity Investments study of participants in its plans. The average account balance for these pre-retirees, ages 55 years or older, rose to $211,300 by the end of the third quarter of this year from $96,000 10 years ago. Pre-retirees with a contribution rate at or above eight per cent this year showed average balances increasing more than 130 per cent over the past 10 years to $291,700, from $125,600. “The past decade was certainly not a lost decade for participants who remained committed to saving even through all of the market’s ups and downs,” says James M. MacDonald, president, Workplace Investing, Fidelity Investments. “A disciplined, systematic savings approach in a diversified portfolio has been the key to building a sizable nest egg for many pre-retirees during one of the most volatile decades in history.”
Sustainalytics has been recognized as the best ESG research house at the TBLI Conference Europe 2010. The IPE-TBLI Group ‘ESG Leaders Awards’ honour select companies for their performance, transparency, and innovation in the environmental, social, and corporate governance (ESG) arena. "Winning this award would not have been possible without the long-term partnership and support of our clients,” says Michael Jantzi, Sustainalytics' chief executive officer, “something for which we are profoundly grateful.”
Tim Dixon is pension administration product head of Citi’s Global Transaction Services (GTS). The appointment marks its entry into pension fund administration in Canada. Dixon has more than 30 years of experience in the Canadian banking industry, having held roles with CIBC Mellon and Canada Trust.
Oliver Fratzscher is strategic advisor to the chief investment officer and the president and chief executive officer at the Caisse de dépôt et placement du Québec. He joined the Caisse in March as executive vice-president and will continue to report to chief investment officer Roland Lescure. Under this mandate, he will be tasked with providing strategic counsel to, and conducting research for, the CIO, president, and CEO.
Jennifer Brown, executive vice-president and chief pension officer, OMERS, and Josephine Marks, managing director, pension assets, Scotiabank, have been added to the program at the CPBI Ontario annual pension summit, ‘Securing Our Retirement Future: Ontario's Plan.’ Keynote speaker is Dwight Duncan, Ontario minister of finance, who will address Ontario’s approach to strengthening the retirement income system. This year's summit will also look at the challenges of plan administration and how public and private plans are coping with the ever-changing pension landscape. It takes place November 24 in Toronto, ON. For more information, visit http://www.cpbi-icra.ca/
Session Looks At DC Plans
Working with Defined Contribution and Capital Accumulation Plans will be the focus of a session at Osgoode Professional Development program’s ‘6th Annual Essential Course in Pensions.’ Susan G. Seller, of Bennett Jones LLP, and Marc Poupart, general manager, pension and retirement programs at Hudson’s Bay Company, will examine areas such as plan texts and service agreements, as well as compliance/governance issues. It takes place November 30 to December 1 in Toronto, ON. Visit: http://www.osgoodepd.ca
Friday, November 12, 2010
Fair-value accounting reveals Ottawa’s employee pension obligations to be larger and more volatile than official figures, says a study by the C.D. Howe Institute. ‘The Public Sector Pension Bubble: Time to Confront the Unmeasured Cost of Ottawa’s Pensions’ study says this exposes taxpayers to an unmeasured $65 billion funding shortfall. It contends the federal government’s net pension obligation under the fair value approach stands at almost $208 billion – some $65 billion larger than reported in the Public Accounts. This gap has grown prodigiously over time and to contain it, contributions in the latest fiscal year would have had to be almost double what was actually paid in. Taxpayers risk finding that the responsibility to back-fill the funding hole falls to them. The study is at http://www.cdhowe.org
The Canada Pension Plan Investment Board (CPPIB) is calling on the federal government to clarify its foreign takeover rules for the sake of investors. The call comes in the wake of the decision to block the takeover of Potash Corp. of Saskatchewan Ltd. David Denison, its chief executive officer, says shareholders need to know which other companies could face restrictions in the future. While the fund accepts the government’s decision to reject BHP Billiton Ltd.’s offer to buy Potash Corp., it needs to know the rules of the game for other companies. Most of the CPPIB’s largest public equity holdings in Canada are in resource stocks. It has extensive holdings in oil sands stocks, including Suncor Energy Inc., Cenovus Energy Inc., and Canadian Natural Resources Ltd.
Merlin Securities, LLC, a prime brokerage services and technology provider for the alternative investment industry, has launched operations in Canada. Merlin Canada Ltd. will offer custody and clearing through the National Bank Correspondent Network. It has more than 500 hedge fund clients in the U.S. and is looking to provide its technology and services to Canadian hedge funds.
The maximum contribution limit for money purchase pension plans for 2011 is $22,970, up from $22,450 last year, says Marilyn Lurz, of Lynmar Associates Limited. She says this means the maximum RRSP limit for 2012 is also $22,970. The 2011 limit is $22,450. The maximum pension accrual for Defined Benefit pension plans has been set at $2,552.22, up from $2494.44.
Brian Goguen is associate director, institutional investment services for Russell Investments Canada Limited. He will manage the day-to-day client relationship responsibilities for its institutional fund-of-fund clients in Canada. He will also support products and services offered to institutional investors regarding investment strategies and solutions.
Thursday, November 11, 2010
It's time for federal and provincial governments to synchronize pension reform efforts to ensure they do not negate Canadians' ability to save, says Katie Walmsley, president of the Portfolio Management Association of Canada (PMAC). Speaking to media at its annual general meeting, Walmsley pointed to the HST as a prime example of how a consumption tax is at odds with wealth accumulation and retirement savings. "It hinders and negates the purpose of saving, particularly when an investor seeks external advice to
diversity holdings to optimize investment returns." PMAC calls for a roll back on HST as it relates to investment management fees. There's concern as well, says Walmsley, that there's too much focus on reforming pension specific regulation and income tax laws that inadvertently impact retirement savings, and that pension plans are being overlooked. Several provincial governments, for example, want input on how to handle the need
for retirement savings, but many of the legislation, including the Pension Benefits Standards Act and the Income Tax Act, are the domain of federal jurisdiction.
Counter-party risk is one of the considerations when constructing a hedge against tail risk, says David Hay, of DGAM. Speaking at the CAIA Canada ‘Tail-Risk Talk,’ he said you need to make sure you are dealing with parties who are going to be around when there is a crisis. He also noted several other important considerations. The investor hedging the tail risk needs to be in control of the hedge and its construction. Cash effectiveness is another consideration as the investor should try to get the best cash payout profile for the fewest dollars. A strong and creative execution is also necessary especially when exiting the hedge. Tails may be signalled before they occur by short-term market movements, says Dr. Jean François Bacmann, of Man Investments. He said that to protect portfolios against these risks investors need a systematic approach. This approach should reduce exposure when volatility is high and increase it when volatility is low. This could involve the use of long volatility or managed futures strategies.
The Canada Pension Plan Investment Board ended the second quarter with much improved investment income and return rates thanks to a rebound in global stock markets. It had $138.6 billion in assets as of September 30, the end of its fiscal 2011 second quarter. That compared with $123.8 billion in assets a year ago and $129.7 billion at the end of the first quarter. Investment income was $8.4 billion, representing a return of 6.6 per cent as the CPP fund rebounded from a loss of $1.7 billion, or a negative return of 1.3 per cent, in the first quarter when stock values plummeted.
Very strong demand for funding of infrastructure projects in emerging markets means that the Infrastructure Crisis Facility Debt Pool (ICF Debt Pool) has already committed 40 per cent of its subscribed capital to investments since Cordiant Capital was appointed its manager in December 2009. Eight investments totalling €200 million have received final approval. Of these, seven totalling €157 million have already been signed. Additional investments totalling €200 million have received preliminary approval. The total currently available for investment by the ICF Debt Pool is €500 million. A recently signed investment is a $30 million, 15-year loan to Tema Osonor Power Limited, a greenfield power generation project in Ghana.
Japanese Funding Ratios Decline
Funding ratios for Japanese pension funds declined to 82 per cent in 2010, a level that represents a slight deterioration from the 84 per cent average reported in 2009 and a much more significant decline from the robust 101 per cent funding ratios reported by plan sponsors in 2008, says Greenwich Associates' ‘2010 Japanese Investment Management Study.’ It suggests that for many individual pension funds, the funding crisis is actually much worse than suggested by these average levels as 70 per cent of Japanese pension funds are funded below 90 per cent and one-third of Japanese pension funds report funding levels of 75 per cent or lower. Apparently, plan sponsors have decided to accept the reality of elevated contribution requirements as an acceptable price for reduced volatility and lower levels of risk. In making that calculation, Japanese plan sponsors are moving in step with their counterparts in Europe and the United States. In both of these markets, corporate pension funds have taken dramatic steps to ‘de-risk’ by shifting assets from equities to fixed income and implementing asset liability matching programs and liability-driven investment programs.
PMAC Unveils New Look
The Portfolio Management Association of Canada (PMAC) officially unveiled its new name and look at its annual general meeting. Formerly known as the Investment Counsel Association of Canada (ICAC), the new name is less passive, stronger, and more indicative of its members, says Katie Walmsley, PMAC president. The new logo's positively rising lines reflect the growth of and leadership in the value members provide, she says.
Northern Trust has enhanced its collateral management system to provide real-time access and transparent reporting of the daily over-the-counter (OTC) derivative collateral call process. This enhancement allows clients to log into a dashboard to view the current status of exposures, collateral balances, and OTC derivative positions, including valuations. The enhancements are available on a global basis to asset owners such as pensions, endowments, corporate and institutional investors, and to asset managers.
Hedge Funds Open Hearts
The seventh annual Hedge Funds Care Canada ‘Open Your Hearts to Children’ Gala was the most successful ever. Attended by close to 200 leaders of the Canadian hedge fund industry, the event raised more than $200,000 for the prevention and treatment of child abuse. Over the past six years, Hedge Funds Care Canada has raised more than $1.2 million in support of this cause.
Wednesday, November 10, 2010
Four in five Canadian organizations offer employees incentives – such as variable pay, performance bonuses, and annual incentives – to motivate them to achieve performance goals, says a survey by The Conference Board of Canada. However, ‘Making Short-Term Incentives Work for Your Organization’ says most organizations using these types of plan do not measure the effectiveness of their programs on organizational results. More than 80 per cent of the Canadian organizations had an incentive pay program in place for at least some or all of their employees. However, 69 per cent indicated they were not able to assess the cost effectiveness of their incentive plan against the level of performance achieved by the organization, team, or individual. Although most organizations find it difficult to measure the effectiveness of their plans, they still believe these plans are somewhat effective in achieving their intended objectives such as driving organizational or individual performance, or linking individual and corporate results.
Canadians today no longer relate to the one-size-fits-all, cookie-cutter investor profiles that financial advisors have relied on for years, says the ‘2010 Desjardins Financial Security Retirement Survey.’ Instead, they want financial advisors to drop the usual lecture in favour of a more personal approach. At the core of this change is the fact that the majority of respondents feel a disconnect between traditional retirement planning and the reality of their lives. In fact, 39 per cent found the process stressful and only 8.3 per cent were making retirement saving a priority. Instead, 84 per cent said they were preoccupied with the pressures of making ends meet and maintaining a work/life balance.
Canadians tend to think that they will take their retirement a little later than planned, says the AXA ‘Retirement Scope’ study. It says this is probably the effect of the recent economic crisis. In fact, among the working population, the five-year gap between the ‘ideal age’ and the ‘planned age’ for retirement – 57 versus 62 – has increased since the previous edition of the survey. But no matter what their current stage of life, those surveyed believe that they will still be able to stop working on average three years before the legal retirement age of 65. It is also interesting to note that 10 per cent of those surveyed have no idea at what age they will retire. This is a sign that these respondents have not yet started to plan their retirement.
Canadians are still unclear on the fundamentals of the Tax-Free Savings Account (TFSA) approaches, says a Bank of Montreal survey. It shows that, despite the fact that more than 36 per cent of Canadians currently have a TFSA, few know what investments can be held within one. “While the adoption rate has been swift, we are seeing some uncertainty and confusion among Canadians when it comes to how to make the most out of a TFSA,” says David Heatherly, vice-president. The survey also found that, of those who do not hold TFSAs, 40 per cent stated it is because they do not have enough money to invest in one.
Institutional investors’ satisfaction with their investment managers is greatly influenced by client service and can be managed regardless of the economic climate or investment performance, says a study by Chatham Partners and Investment Metrics. It found 60 per cent of overall satisfaction can be attributed to investment performance, but this can often be cyclical and unpredictable. In contrast, 40 per cent of client satisfaction is attributable to service-related factors that can be delivered consistently. In addition, the research suggests that managing customer service is not a singular act, but rather a broad collection of activities that combine to create high overall satisfaction levels.
Organizations experience numerous challenges in performance management, says a WorldatWork and Sibson Consulting study. The ‘2010 Study on the State of Performance Management’ indicates the top three goals of performance management are differentiating distribution of rewards based on individual performance (66 per cent); establishing greater individual accountability (54 per cent); and supporting talent development (46 per cent). The top three performance management challenges are that managers lack courage to have difficult performance discussions (63 per cent); performance management is viewed as an ‘HR process’ instead of as a ‘business critical process’ (47 per cent); and that they experienced poor goal setting (36 per cent). Evaluations from performance management are much more likely to be linked to merit increases than to either short- or long-term incentives.
Dan Carpick is regional vice-president, western region, and John Stevenson is regional vice-president, central region, at Great-West Life Group Retirement Services. As well, Jennifer Gregory is vice-president, national accounts, responsible for meeting the business development and group retirement product and support needs of the large-case market. Carol Edwards, previously regional director, southwestern Ontario region, is manager, business development, national accounts – central region.
Jacqueline Beaurivage is head of the enterprise project management office at the Ontario Teachers' Pension Plan. In this newly-created position, she will oversee the establishment and operations of an enterprise-wide office. She joins the fund from the Canadian Imperial Bank of Commerce where she was senior vice-president, corporate development.
Prescription drug reform is the focus of a CPBI Manitoba region breakfast. Teresa Negrich, director of group marketing at Great-West Life, will explain how drug reform in Ontario, Alberta, B.C., and Newfoundland – with reforms planned for 2011 in Quebec and Nova Scotia – has impacted the cost of group benefits plans in those provinces. It takes place November 18 in Winnipeg, MB. For more information, visit www.cpbi-icra.ca/McTeer Shares 21st Century Thinking
Maureen McTeer and Dr. Alain Sotto are the keynote speakers at the Toronto Chapter of the International Society of Certified Employee Benefit Specialists (ISCEBS) ‘21st Century Thinking.’ McTeer, an expert on regulatory mechanisms dealing with reproductive technologies in Canada and the UK, will focus on medical decision-making in the 21st century. Dr. Sotto has served as lead medical officer at Boeing, CN Railway, and Pratt-Whitney. He is currently chief physician at Ontario Power Generation and occupational medical consultant to the Toronto Transit Commission. He is also an expert on corporate wellness and health programs. It takes place November 18 in Toronto, ON. Visit: http://torontoiscebs.org/index.cfm
Tuesday, November 9, 2010
New Brunswick is the fifth Canadian province to embark on a review of its pension legislation, says a McInnes Cooper ‘Pension Law Legal Update Review.’ The review will focus on the security of pension benefits and long-term sustainability. It will also consider “the structure meant to protect pension plans to insure they are as effective as possible.” There has been no indication as to whether other issues such as pension coverage will also be considered.
Institutional investors are continuing their shift toward emerging markets and alternative strategies such as long-short equity, macro funds, and special situations, says a Deutsche Bank survey. However, the shift is coming at the expense of U.S. equity. It found 46 per cent of investors anticipate increases to emerging markets and 41 per cent for hedge funds over the next 12 months. As well, 44 per cent would like to decrease their exposure to U.S. large-cap equities, and 38 per cent would like to reduce exposure to small cap equities. Respondents also noted that interest rates would have to increase 200 basis points to make liability-driven investment strategies feasible.
Employer-sponsored retirement plans are incredibly important to the workers who participate in them, but most are not maximizing the savings power of these plans to their full potential, says a survey by the ING Retirement Research Institute. Nearly two-thirds (64 per cent) say their employer-sponsored retirement plan accounts for all or most of their retirement portfolio. However, it also found a majority of workers (87 per cent) could be saving more in their employer-sponsored retirement plan. Many plan participants lack a clear understanding of contribution rates and the lifetime value of even small increases. As well, for many workers, setting workplace retirement plan contribution rates appears to be either a guess or a back-of-the-envelope calculation. Very few consulted outside resources in determining their contribution levels.
A lobby group for hedge funds says it is opposed to the creation of a self-regulatory organization for hedge funds in the U.S. The Hedge Fund Association says that the U.S. Government Accountability Office is studying the feasibility of creating an SRO for hedge funds. However, “in light of the new registration requirements imposed by the Dodd-Frank Bill we believe that any SRO would prove to be entirely redundant and represent yet another regulatory cost that will suppress industry growth,” says David Friedland, president of the association and president of Magnum U.S. Investments, Inc. It is urging regulators to limit hedge fund regulation to the currently established registration requirements and abandon any consideration of an SRO.
Jane Rowe is senior vice-president, Teachers’ Private Capital, at the Ontario Teachers' Pension Plan. She is responsible for strategic portfolio growth and deal stewardship at Teachers’ Private Capital, the fund’s private investment department. Most recently, she was executive vice-president, special accounts management and retail credit risk the Scotiabank Group.
Monday, November 8, 2010
There are powerful trends – that will intensify – impacting workplace health and productivity and putting increasing pressure on organizations to support healthy employees actively engaged in their health and the goals and objectives of the business, says Karen Seward, executive vice-president, Shepell*fgi. Speaking on health management trends at its ‘Toronto Day of Discovery,’ she said organizations that recognize and act on this reality with a strategic and integrated health and productivity approach will derive a significant competitive advantage. Some of the trends now taking place are the aging of the workforce, the large percentage of Canadians about to retire, and generational and cultural issues as by 2020 there will be five generations in the workplace. Employers must deal with health risks because they can result in a lack of interest in job, stress, a loss of productivity, and increased absenteeism. These can also result in higher benefits and insurance costs for employers. She said the question is “what are we doing to help employees deal with health issues because we can't control costs without doing so. We need to take actions to reduce the number of people making claims. This is a business problem, not a health problem,” she said.
The baby boomer generation has revolutionized every life stage to date and will also revolutionize retirement, says Bensimon Byrne's ‘Consumerology Report.’ "While most Canadians view retirement as a 'second life' – an opportunity to do the things they really want – we found three-quarters of Canadians are financially unprepared to afford the lifestyle they imagine," says Jack Bensimon, president of Bensimon Byrne. "The 'new retirement' will look a lot more like a 'working retirement,' as retirees try to afford the quality of life they want to maintain." Among the findings are that most people would like to retire earlier than they expect to be able to, but only a third of Canadians expect to be retired before 65 and almost one in five expect to be working after age 70. "Due to the images marketers portray, we have a clichéd and dated view of retirement, centered around passive leisure," says Bensimon. "The reality is that many Boomers intend to have active retirement lifestyles. Over 50 per cent of Canadians expect to work in some capacity well into their so-called golden years, whereas more than three-quarters of current retirees haven't worked in any capacity.”
The challenge in terms of attendance management is “we make it medical and suggest they go to the doctor and get a note,” says Jean-Marc Mackenzie, senior vice-president, health management, at Shepell*fgi. He told a total attendance and disability management session at its ‘Toronto Day of Discovery’ that by forcing it into medical, “we are sending it where it does not belong.” Instead, employers need to act early and identify the real source of an absence and provide employees with access to support to deal with these issues. He said 75 per cent of medical absences are not for medical reasons. They may be for personal reasons, family issues, substance abuse problems, finances, and job satisfaction.
RBC Dexia Investor Services has launched a passive FX hedging service designed to protect investments against currency translation risk. The currency hedging solution offers transparent pricing and client-driven execution times that provide liquidity matching and fund valuation consistency, with flexibility to hedge at different levels of fund hierarchy. It will allow clients to outsource the end-to-end responsibility for data capture, currency hedging calculations, and transaction reporting to RBC Dexia, as well as the generation, execution, and settlement of trades – with the entire model fully integrated with RBC Dexia's custody and fund accounting systems, as well as external data sources.
The basic advice towards having a psychologically healthy workplace has changed over the last three years, says Dr. Martin Shain, director and founder of the Neighbour at Work Centre – a workplace health consultancy – and senior consultant with the Consortium for Organizational Mental Healthcare. “What has bubbled up through the cracks for me comes from the law,” he told Shepell*fgi’s ‘Toronto Day of Discovery.’ It is now “saying we don't hire the right people to manage and supervise.” People are needed in the workplace who understand the legitimate rights of others and the mental health of people. Dr. Robert Francis, founder of the Medcan Clinic, said CEOs want good mental health in the workplace, but “sometimes people on the line don't get it. They forget the human element or don't want an incident.” Dr. Alain Sotto, who has served as chief medical officer with some of the largest North American corporations, said when employees come back to work after a mental health incident, employers should try to not only accommodate their needs, but educate the workplace to accommodate them. “We accommodate physical problems, but we need to accommodate those returning from mental health incidents,” he said. This is the “crux for a successful return to work.”
An Ontario arbitrator has ruled employers can reduce or eliminate employee benefits once an employee reaches age 65, says Hicks Morley’s ‘FTR Now.’ In Ontario Nurses’ Association and Municipality of Chatham-Kent, Arbitrator Brian Etherington said while this may violate equality rights of the Canadian Charter of Rights and Freedoms, they are a reasonable limit on those rights and are, therefore, constitutional. In coming to his conclusion, he noted that the choice of any age limit always involves a degree of arbitrariness, stating that “there may be a range of acceptable alternatives available to government to select, but … they must inevitably engage in some line drawing and decide on which is the preferable limitation from a social policy perspective given the need to balance the interests of the individual with the collective interests at stake.” This is good news for employers. With the abolition of mandatory retirement, employers have had to confront the question, given the increased cost and limited availability of benefits for older employees, whether they can provide a different package of benefits to those employees who stay on past 65. Unless overturned by the courts, this award affirms that such distinctions are lawful in Ontario.
Sun Life Financial now has a wireless tool to enrol employees on the spot into group retirement plans. Employees who attend enrolment sessions will each have access to a BlackBerry PlayBook. They will be walked through the plan design concepts, have the benefits explained, and then be shown how to enroll. When the employee hits ‘Submit’ at the end of the process, the data will be transmitted wirelessly and securely to Sun Life systems for direct processing.
Borealis Infrastructure, the infrastructure investment arm of OMERS Worldwide, and the Ontario Teachers' Pension Plan have jointly purchased High Speed 1 (HS1), Britain's only high-speed rail link to the Channel Tunnel. The 68-mile HS1 rail network connects central London through southeastern England to the Channel Tunnel. The British government, through state-owned London & Continental Railways, announced in June 2010 the start of a competition to sell a 30-year concession to own and operate the rail link. It is used every year by more than nine million international and by more than five million domestic passengers. It earns the majority of its revenues from track access charges.
The CPBI Benefit Ball is going Hollywood. Theme of the seventh annual event to raise money for Crohn’s disease and ulcerative colitis is ‘Going Hollywood.’ It takes place February 10 in Toronto, ON. For more information, visit http://www.cpbi-icra.ca/
Friday, November 5, 2010
The mid-term election results in the U.S. are probably good news for investors was the consensus of a panel on developed markets at the Legg Mason Investment Symposium ‘Rethink 2010.’ Patrick Kaser, co-head, large cap value, for Brandywine Global, said investors like it when there is a division of power. As well, a more conservative congress means the so-called ‘Bush’ tax cuts may continue. He also believes that from an investor and manager standpoint some of the worst fears of derivatives legislation may be lessened, however, regulatory risk is still overhanging the investment sector. Sam Peters, senior portfolio manager at Legg Mason Capital Management, believes there will be a recovery in capital spending by U.S. corporations as they have been holding off until after the election. Michael Kagan, senior portfolio manager at ClearBridge Advisors, thinks the election results mean that the U.S. can now turn to real issues such as fiscal policy and the deficit. When Barack Obama was elected president, he had an agenda to pursue and knew it needed to get done right away. Now, the focus will be put on what they should be focusing on, he said.
More than three-quarters of Canadians in the Prairies support increasing Canada Pension Plan benefits, says the Canadian Union of Public Employees and the Public Service Alliance of Canada’s ‘Future of Pensions’ poll. Eighty per cent of people in the Prairies also support increasing federal payments to senior citizens and half of the survey respondents believe the government is moving too slowly in reforming Canada's pension system. Despite the economic downturn, those currently part of workplace pension plans believe their pension benefits are safe. But two-thirds prefer a Defined Benefit plan, which guarantees a fixed amount of benefit when you retire, to a Defined Contribution plan, where the benefits paid out depend on the performance of the investments in the fund.
It’s better to buy emerging markets when they are in distress as when their growth is good is “when it is time to run,” says Paul Ehrlichman, head of global equity, Global Currents. Speaking at the Legg Mason Investment Symposium ‘Rethink 2010,’ he said right now indiscriminate buying is taking place, investors don't care what they are buying, just that they are getting in. However, with emerging markets, quality is critically important. He said emerging markets portfolios need to be built by buying good companies when they are cheap. He urged investors to be careful and creative because it is not an ideal time from a valuation standpoint.
Awareness of new tax obligations resulting from recent amendments to the Excise Tax Act among employers that participate in pension plans subject to the new rules is “very, very low,” says Greg Hurst of Greg Hurst & Associates Ltd. The new rules have established a principle of “deemed supply” in respect of certain activities relating to administration of certain pension plans that result in additional GST/HST payable by some employers. Remittance of these additional taxes, in most cases, is due by the end of the month following an employer’s fiscal year ends occurring on or after September 23, 2010. Thus the additional taxes for employers with a September 30 year end were likely due no later than October 31. Employers operating under a calendar fiscal year in most cases will be required to include the additional tax with their January GST/HST remittance. “This is an immediate issue for many, many employers and there are steps they can take to manage their tax obligations or even to shift them onto the appropriate pension entity,” says Hurst.
Traditional risk management – diversification – still provides benefits over the long term, but what can investors do in the short term to manage the risk of black swans when correlations rise and diversification is of little benefit? Stephen Bleiberg, head of global investment strategy at Legg Mason Global Asset Allocation, told a session on ‘Portfolio Allocation in the Black Swan's Wake’ at the Legg Mason Investment Symposium ‘Rethink 2010’ that the only thing that went up during the financial crisis was correlation. However, to achieve the ideal payoff structure investors need some sort of floor for when the market goes down. That calls for call options which can be replicated in two ways – dynamic risk management or a derivatives overlay strategy. Whichever method is chosen, he said, it is essential to have a systemic approach in place before the markets move as it is “easy to miss the boat if you are scrambling to come up with a strategy when the markets move.”
Russell Research has assembled a guidebook on risk management and fund governance. ‘Risk management: A fiduciary's guidebook’ contains 14 articles written by Russell consultants and strategists around the globe. Each is prefaced by a short introduction explaining the historical context in which it was written and its area of focus. Bruce Curwood, director of investment strategy and an author of a number of articles in the guidebook, says fiduciaries began to realize the importance of coupling good risk management with solid governance policies and practices in the wake of the last two economic debacles (the Tech Wreck in 2000 and the recent GFC). In both instances, he says fiduciaries weren't prepared for the downside of investing and market volatility was larger than expected. They are “realizing now that good governance and an effective risk management process are closely intertwined, and that these are the two areas – in an uncertain world – within their power to control.”
Sovereign debt matters, says Kenneth Leech, CIO Emeritus, Western Asset Management. He told the ‘Where do we go from here’ session at the Legg Mason Investment Symposium ‘Rethink 2010,’ there is a question of which countries will “pay us back.” Unlike corporate debt where a failure to repay means the company goes bankrupt, that is not the case with sovereign debt. Currently, he said there are question marks around the ability of the U.S. and the UK to repay their debts and Greece will need help if its economic growth doesn’t allow it to pay its own debt. Unfortunately, he said you won’t solve these problems without a crisis. Bonds need to go zero before anything is done as only when there is a crisis will a country’s population agree to austerity measures.
State Street Corporation has been appointed by the Workplace Safety and Insurance Board of Ontario (WSIB) to provide a full range of investment services for its pension fund, loss of retirement income fund, and insurance fund totaling $15 billion in assets. The WSIB administers Ontario’s no-fault workplace insurance plan for workers and employers and oversees the province’s workplace safety education and training system. State Street will provide custody, accounting, securities lending, and investment analytics services across the three funds.
Sharon Chandler has been appointed to the investment advisory committee and employee benefits advisory committee of the Canadian Cancer Society. She is a long-standing volunteer with the Canadian Cancer Society and recently retired as chief operating officer from the CAAT Pension Plan. She also serves on committees for the Association of Canadian Pension Management.
‘Going Global: Strategies to Access Capital and Opportunities from the U.S. and Abroad’ is the focus of a CVCA – Canada's Venture Capital & Private Equity Association session. Speakers – including Andre Bourbonnais, senior vice-president, private investments, at the CPP Investment Board, and Paul Renaud, president and chief executive officer at OMERS Private Equity – will examine issues such as Canada’s role in the flow of funds that can so readily cross borders and where the opportunity is for Canada’s pension funds. It takes place November 24 in Toronto, ON, and it is being broadcast into Vancouver, BC; Calgary, AB; Winnipeg, MB; Ottawa, ON; Montreal, QC; and Halifax, NS. For more information, visit www.cvca.ca
Thursday, November 4, 2010
The strong returns of late from the recovering Canadian stock market benefited small cap investment strategies in a big way, says the ‘Russell Active Manager Report.’ It says the median small cap manager in Canada posted a return of 12.7 per cent, well ahead of the median large cap manager return of 9.9 per cent. It also found that after lagging value managers for five consecutive quarters, the growth style of investing was more in favour in the third quarter, as 47 per cent of growth managers outperformed the S&P/TSX Composite benchmark compared to 31 per cent of value managers. That compares to only 24 per cent of growth managers and 45 per cent of value managers in the second quarter of 2010.
A part of the fiduciary responsibility of a pension committee and administrator is to follow the ‘prudent man’ rule, says Gerry Wahl, former assistant treasurer and pension manager for TeckCominco. In the article ‘Termination – A Very Difficult Decision’ in the November issue of ‘AlternativChronicle,’ he says this means the issue of hiring and firing managers is a key aspect of pension governance and one which pension committees, new plan sponsors, and even individual investors must be prepared to address head on. A logical hiring process and documentation of the key factors considered when adding an investment option will make the issue of terminating an investment option far easier, he says. As well, ensuring that the simple, but often forgotten, process of documenting the reasons and expectations in hiring a manager will also demonstrate that a prudent approach was used in both the hiring and termination process. The article can be found at http://www.alternativchronicle.com/
“We are definitely in an abnormal economic environment,” says David A. Rosenberg chief economist and strategist at Gluskin Sheff + Associates Inc. Writing in his ‘Breakfast with Dave’ column, he says “we just came off a two per cent real GDP growth performance in a quarter – the fifth in this nascent recovery – where the economy is usually humming along at a 4.3 per cent clip and on a lot less government stimulus.” Yet, just as the market became a feeding frenzy after the Fed began to aggressively cut the discount rate in August 2007, few people are focusing on the reasons why the central bank is being so pro-active. “The Fed just may well be seeing something in the economic outlook that has yet to fully register with Mr. Market,” he says.
The benefits industry is on the verge of great change, says Greg Caines, a partner at Morneau Sobeco in Halifax, NS. Speaking at the International Foundation of Employee Benefit Plans’ ‘Annual Canadian CEBS (Certified Employee Benefits Specialist) Graduate Luncheon,’ he said he cannot recall a time in his years in the industry when so much was taking place. As a result, he believes that is an evolution taking place in benefits planning which will result in the first wholesale change in the industry in the past 25 years. Future benefit plan will look much different due, in part, to how plans will be communicated in a paperless environment, using social networking and media.
The deficit in pension plans sponsored by S&P 1500 companies decreased by $56 billion to $373 billion at the end of October, says Mercer. This deficit corresponds to a funded status of 78 per cent, compared to a funded status of 76 per cent at the end of September and 84 per cent on December 31, 2009. Equity gains continued in October generating returns of four per cent for the month after returning nine per cent in September. The yields on long maturity AA bonds, which declined to historic lows as of the end of August, rose by approximately 17 basis points in October. Because pension plan liabilities are valued using similar AA bond yields, the result was generally higher discount rates and lower liabilities for most plans as of the end of October.
The federal Liberal party is contemplating an election platform that promises a voluntary supplemental pension plan and a significant easing of rules that now limit to one year retroactive payments for late claimants of Canada Pension Plan benefits, says a report in ‘The National Post.’ It says the Liberal caucus is also suggesting pledging to call a first ministers meeting to map a comprehensive national strategy for dealing with an aging society within 90 days of the party being sworn in as the next government. The ideas are contained in a ‘white paper’ prepared by a party working group on retirement income security, a group co-chaired by Liberal MP Judy Sgro, the party’s seniors and pension critic. The papers were obtained by the New Democratic Party, which shared them with Postmedia News.
The majority of Canadian HR professionals believe workers have become more litigious in recent years and fear the trend will continue over the next five years, says a survey by the Human Resources Professionals Association. ‘Are employees becoming more litigious’ shows a majority of respondents (69.5 per cent) believe that employees are more likely to bring legal action against previous employers today than they were five years ago and almost four-fifths (79.8 per cent) felt the situation will be worse five years from now. Most (74.6 per cent) also believe the courts and other adjudicative bodies were tilted in favour of employees, a perception that many respondents say prompts employers to settle with employees regardless of the merits of their case. The most problematic issues in terms of litigation were wrongful dismissal, termination and severance pay, human rights complaints / discrimination, accommodation issues, and severance arrangements.
Jim Leech, president and CEO of the Ontario Teachers' Pension Plan, is the recipient of the Canadian Public Relations Society Toronto’s ‘18th annual CEO Award of Excellence in Public Relations.’ Since his appointment as president and CEO of Teachers’, Leech's priority has been to establish a distinct culture and to recognize that their people are the key to driving their success. Through his leadership, Teachers' engaged in a committed and rigorous proactive communications program to involve the entire organization in establishing a vision for the future. The result of this process has been very positive and earned the award.
The findings from the task force for financial literacy will be presented at the Investment Funds Institute of Canada’s ‘Financial Literacy Forum.’ Laurie Campbell, executive director, Credit Canada, will present the findings. It takes place November 30 in Toronto, ON. For more information, visit https://www.ific.ca/
‘Molehill Your Mountains: Dealing Positively With Change’ will be the focus of the next Employee Assistance Program Association of Toronto (EAPAT) breakfast. CJ Calvert, author of ‘Living an Exceptional Life’ and founder and president of CalvertTraining, will explain why people react differently in stressful situations, the secret to managing frustration and anxiety, and understanding your change ‘personality style.’ It takes place December 2 in Toronto, ON. For more information, visit www.eapat.orgwww.healthachieve.com
Wednesday, November 3, 2010
Despite ranking in the top 10 in both GDP per capita and percentage of GDP spent on health, Canada ranks 23rd out of 29 OECD countries in terms of public plan coverage of new medicines, says the annual ‘Rx&D International Report on Access to Medicines 2009-10 (IRAM).’ It found Canada ranks remains far behind the OECD average for the 150 drugs included in the report ahead of only Poland, New Zealand, Luxemburg, Spain, Japan, and Turkey. In terms of oncology drugs, Canada is ranked 15th out of 29 OECD countries with just over 55 per cent of new cancer drugs reviewed by JODR covered by Canadian public drug plans compared to an average of 65 per cent in the other OECD countries. "These findings will surprise Canadians. The IRAM Report reveals that less affluent countries than Canada are finding ways to provide greater access to innovative medicines through their public drug plans," says Russell Williams, president of Rx&D.
Investors should not let the market dictate the level of risk in their portfolios, says Nicolas Papageorgiou, associate professor of finance at HEC Montreal and director of quantitative research at BrockhouseCooper inc. Speaking at AIMA Canada’s luncheon ‘Thriving in a 30-VIX World,’ he said asset allocation and risk management should be addressed separately and there is a systematic and predictable component to volatility that managers and investors should exploit. Exposure should be managed actively so as to keep the portfolio volatility at the target level with market exposure removed if volatility rises above the target level and added if it falls below target level. This eliminates fat-tails by ensuring that the draw-downs are consistent with the volatility targets and, in essence, “we are ‘normalizing’ the return distribution,” he said.
Russell Investments Canada Limited has launched the ‘Russell Smaller Companies Pool.’ The pool focuses on companies with a market capitalization of less than $3 billion and is designed for investors who want to participate in the higher return potential of a dynamic asset class as the global economy recovers. As well, it adds risk-reducing diversification to large cap equity holdings. Sadiq S. Adatia, chief investment officer, is lead portfolio manager of the pool.
The International Organisation of Pension Supervisors has launched a set of standards to strengthen supervisory techniques globally. It will offer an online ‘toolkit' for risk-based supervision to help pension supervisors identify weaknesses and potential problems. The organization has also revised its ‘Principles for Private Pension Supervision' to take into account lessons from the global financial crisis. It says the financial crisis changed the approach of pension supervisors in the UK and abroad and led to more dialogue between scheme members and industry figures.
The International Accounting Standards Board (IASB) has rejected a proposal to drop the proposed net-interest approach for the presentation of Defined Benefit pension plan components in an entity's statement of comprehensive income. This will mean an end to the DB plan sponsor practice of reporting an expected return on plan assets on the income statement. Under a net interest proposal, plan sponsors must present a service cost component in profit or loss; a finance cost component – net interest on the net DB liability or asset – as part of finance costs in profit or loss; and remeasurements in other comprehensive income.
AG2R LA MONDIALE, the French insurance group, will launch its first responsible investment (RI) Euro fixed income fund to be offered to third-party investors. The product has been developed in line with its commitment to sustainable investment and to its core values. The fund will consist of three component mandates – a government bond mandate, a credit bond mandate, and an aggregate bond mandate. It will integrate responsible investment processes in compliance with values brought forward by French retirement institutions, jointly managed by employee and employer representatives. Managers for the three mandates were selected following an extensive selection process led by Mercer.
Craig Siddall, CFA, is a vice-president and consultant relations manager focusing on Canada for T. Rowe Price. He will be responsible for further developing its relationships with investment consultants serving institutional investors. He has more than two decades of experience in institutional investment consulting and client management, providing advice and guidance to some of Canada's largest pension and investment funds.
Joseph Ricciuti is a partner in Morneau Sobeco’s benefits consulting practice, Ontario region. In this role, he is responsible for managing clients in the region and will focus on business development initiatives to further build and grow the organization’s benefits consulting and health and productivity practice in the province. He has more than 25 years of experience within the group and healthcare industry in Canada.
Tuesday, November 2, 2010
If the provincial government is serious about improving plan administration, a simple ‘fix’ would be to clarify that all reasonable administration expenses can be paid from the plan fund and contribution holidays can be taken, without regard to historical plan documents, as long as the current or amended plan terms do not prohibit such actions, says Ian McSweeney, of Osler, Hoskin & Harcourt. He says this would be a real step forward in achieving a more affordable Defined Benefit pension system that properly recognizes the priority of primary goals like improving pension coverage and delivering promised benefits ahead of perpetuating expensive stakeholder squabbles relating to the largely unintended results of historical plan drafting. Bill 120, the province’s latest proposal for pension reform, would, unless prohibited “or otherwise provided for, under the documents that create and support the pension plan or the pension fund,’ permit reasonable plan and fund administration expenses to be paid out of the pension fund. The bill would also clarify that, in addition to the fees of third-party service providers, permitted expenses may include reimbursement of the administrator’s “internal” expenses. McSweeney says while this is very helpful in principle, the exemption wording needs to be revised in two respects before Bill 120 becomes law if the government is to deliver on its stated objective of “improving plan administration.”
The Canadian Life and Health Insurance Association (CLHIA) is recommending the use of fully insured LTD plans as a proper security net for providing LTD benefits, says Eckler ‘GroupNews.’ It says insurers are concerned that most plan members are not aware of the difference between insured and non-insured LTD plans as not all provinces require plan sponsors to make this disclosure. Many plan sponsors with non-insured plans (or self-insured plans as they are most frequently called) hire an insurer to administer them – an arrangement called Administrative Services Only (ASO), but fund the benefits out of their current revenues on a pay-as-you-go basis. Indeed, the current tax environment does not make it attractive for plan sponsors to fully fund, on an actuarial basis, LTD liabilities. CLHIA, in 2008, said about 1,400 of Canada’s largest companies with 1.1 million workers had no insurance to protect their LTD plans. For some, it may be a cost-cutting approach for the organization, but it leaves benefits unprotected in the case of bankruptcy. Its conclusion is that the most effective way to achieve the public policy objective of protecting individuals on LTD with minimum administrative cost and complexity is to require that all LTD plans be provided on an insured basis only. However, Eckler says for many plan sponsors, this [insured plans] is not a practical solution for several reasons including employees may belong to a risk group that insurers are not interested in insuring and a lack of control over disability management and rehabilitation of employees. It says the safety net for LTD benefits is in the appropriate determination and funding of reserves.
DEGI Europa, an open-ended real estate fund in the process of liquidating its assets, has sold a shopping centre in Germany to the Canada Pension Plan Investment Board (CPPIB) and LaSalle Investment Management. CPPIB and LaSalle entered into a joint venture for the transaction, whereby the Canadian institution has taken an 80 per cent stake in shopping centre Hürth Park – its first direct investment in Germany – with the remainder being owned by a value-add real estate fund managed by LaSalle. As part of the joint venture, CPPIB and the LaSalle fund are planning a comprehensive refurbishment and repositioning of the centre.
Although institutions in Europe and the United States have made Transaction Cost Analysis (TCA) a standard part of their equity trading operations, it remains to be seen if the system for analyzing trading effectiveness will live up to its early promise, says a Greenwich ‘Market Pulse.’ It says that, by and large, institutions are satisfied with their TCA systems and providers. However, the study results suggest institutions' relatively high levels of satisfaction are related mainly to the use of TCA as a tool for compliance and some general tracking of overall trading desk performance. Digging a bit deeper, institutions express disappointment and even frustration about the inability of TCA systems to generate analysis that provides opportunities for institutions to improve overall performance by wringing new efficiencies out of the trading process.
SuperDerivatives, Inc. (SD), the derivatives benchmark and multi-asset front office system, has entered into a memorandum of understanding with Algorithmics, the provider of risk solutions, to offer banks, funds, and asset managers a comprehensive solution to improve their risk management capabilities. The collaboration includes two elements: integrated data for managing OTC derivatives using SD’s market leading volatility surfaces and Algorithmics’ risk analytics for all asset classes and instruments. The combined services of Algorithmics and SD gives both buy and sell-side derivatives trading institutions an industry standard, market-calibrated risk reference data for foreign exchange, commodities, energy, equities, interest rates, and credit derivatives.
Claude Bergeron is executive vice-president and chief risk officer of the Caisse de dépôt et placement du Québec. He joined the Caisse in 1988 and most recently served as executive vice-president, legal affairs and secretariat and acting chief risk officer. André Brodeur is senior vice-president and deputy chief risk officer. Previously, he was a partner at the Montreal, QC, office of consulting firm McKinsey & Company. He will lead the teams responsible for overall leadership, investment policies, management styles, monitoring, and operational risk. Marc-André Lewis is senior vice-president and deputy chief risk officer. He has been a member of the Caisse since 2009. He will be primarily responsible for the teams that perform the monitoring activities of VaR (value at risk) market, credit, liquidity risk, counter-party, and stress tests. Marie Giguère is executive vice-president, legal affairs and secretariat. She was previously with Fasken Martineau, Molson, and the Montreal Exchange. She also worked at Otéra Capital, a subsidiary of the Caisse.
The CPBI Alberta North region will present a session on 'Keeping it Simple: Making Pension and Benefit Communications Understandable and Engaging.' The presenter is David Schneider, of the Edmonton Police Service. It takes place November 17 in Edmonton, AB. For more information, visit www.cpbi-icra.ca
The changing pharmacy environment will be the focus of a Benefits Breakfast Club session. It will look at the immediate impacts on plan sponsors and the long-term implications of the reduction in generic prices. Presenters for this session will include Tim Clarke, national health and benefits innovation leader, Aon Hewitt; Peter Zawadzki, professionals affairs executive with Pharmasave National; and Allan Malek, vice-president, professional affairs at the Ontario Pharmacists' Association. It takes place in Mississauga, ON, November 25. For more information, visit www.connexhc.com
The CPBI Ontario region’s ‘Annual Pension Summit’ will feature Dwight Duncan, Ontario’s minister of finance as the keynote session. He will address the current state of the Canada Pension Plan, what the future holds, and some of the proposals that are being considered. This year's summit will also touch on challenges of plan administration and how public and private plans are coping with the ever-changing pension landscape. ‘Pension Management Challenges in 2011: Ontario's Plan’ takes place November 24 in Toronto, ON. For more information, visit http://www.cpbi-icra.ca/
Monday, November 1, 2010
An Ontario consultation paper is calling for a modest enhancement to the CPP and is looking for public input on proposals to improve pensions. In a letter accompanying the paper, Finance Minister Dwight Duncan says he believes an enhancement to the CPP is affordable if contribution rates are phased in gradually, “particularly in light of the over $8 billion in annual tax relief Ontario will be providing to businesses as part of its tax plan.” This Ontario report does not back any specific models to improve pensions. It only outlines different options and asks for comment on the choices including allow financial institutions to offer pension plans with participation from multiple employers, allowing more companies to offer retirement benefits to workers, and reducing administration costs by creating large pools of funds.
U.S. institutional investment plan sponsors returned to positive performance in the third quarter of 2010 with a median gain of eight per cent, says data in the Northern Trust Universe. "It's turning out to be a roller-coaster year for institutional plan sponsors with strong returns in the third quarter following losses in the second quarter and moderate gains in the first quarter," says William Frieske, senior performance consultant, Northern Trust investment risk and analytical services. "As a result of these quarterly swings, volatility in institutional plan performance has nearly doubled over the past two years." Performance also varied by segment in the third quarter with corporate pension plans and public pension plans each gaining 8.8 per cent at the median while foundations and endowments and wealth management clients had median returns of 7.4 per cent.
More than three quarters of Atlantic Canadians support increasing Canada Pension Plan benefits, says the ‘Future of Pensions’ survey for the Canadian Union of Public Employees and the Public Service Alliance of Canada. "From coast to coast, Canadians support higher CPP benefits," says Paul Moist, CUPE national president. "Atlantic Canadians are sending a clear message to federal and provincial politicians who are currently studying ways to improve the CPP." While many Atlantic Canadians have set up a retirement savings plan or a tax-free savings account, more than four in 10 acknowledge that they are not saving for retirement, mostly because they cannot afford to.
The questions baby boomers face now are about outliving their retirement savings, potentially onerous healthcare costs, and the need to fund education for children and grandchildren, says Kevin Dougherty, president, Sun Life Financial Canada and Sun Life Global Investments. Speaking at the CPBI Western regional conference, he said policymakers must realize they need to protect consumers who don't yet realize the pitfalls they may face. The CAP guidelines were a good start, but protection needs to be built into the products offered to the consumer, changes in financing of pension plan are needed, and features for the "new normal" are needed. As well, advice needs to be built into pension and retirement schemes to make it easier for consumers to grasp the concept that money invested now will provide a safety net later on.
Canadians pay almost twice as much for generic prescription drugs as Americans, says an Aon Hewitt ‘Monitor.’ Citing research from the Fraser Institute, it says in 2009 prescription drugs accounted for 8.8 per cent of total government health spending, down from 9.3 per cent in 2006, and patented prescription drugs accounted for 5.5 per cent of the total, down from 6.3 per cent. Average prices for existing patented prescription drugs have grown at a slower annual pace than the general rate of inflation for 19 of the last 22 years, and declined in nine of those years. And while introductory prices for patented medicines in Canada are lower than in many other countries and far below American prices, Canadians pay twice as much. Due to a lack of competition among pharmacies, retail prices for generic drugs in Canada are 73 per cent of the price of their brand-name equivalents, compared with just 17 per cent in the U.S.
Approximately 45 per cent of hedge fund managers in the United States and approximately half of hedge funds in Europe and Asia say one or more of their funds remain below their "high-water" marks, says the ‘2010 Greenwich Associates/Global Custodian Prime Brokerage Study.’ The relatively large number of hedge funds struggling to reach prior high-water marks in performance demonstrates the extent to which the hedge fund industry is still feeling the after-effects of the global financial crisis – despite a period of strong investment performance that has helped the industry put some of the worst consequences of the crisis behind it.
Industrial Alliance Insurance and Financial Services Inc. is launching the second generation of its extranet, a secure website for plan members and sponsors of its group savings and retirement plans, as well as for its business partners. The new site’s flexibility and enhanced IT tools were designed to adapt to users’ growing expectations. The new and updated tools include the addition of utilities such as customized sessions and changing of passwords online; a browsing method by menu, which is simpler and more instinctive for users; and better performance by the search engine.