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May 27, 2016

Few Favour Older Retirement Age

Globally, only 20 per cent think the retirement age should increase in line with increases in life expectancy. However, in the U.S., people feel somewhat differently with 32 per cent believing the retirement age should increase with life expectancy, says ‘A Retirement Wake-Up Call: The Aegon Retirement Readiness Survey 2016,’ a report from the Aegon Center for Longevity and Retirement (ACLR) in collaboration with the Transamerica Center for Retirement Studies (TCRS). “Raising the retirement age is a complex issue. On one hand, it can pave the way for people to extend their working years and continue saving for retirement. But, on the other hand, it can only be successful if employment opportunities are available to older workers,” says Catherine Collinson, president of TCRS and executive director of the ACLR. With people living longer than ever, the cost of funding retirement is more expensive for governments, employers, and individuals. “Solving this equation for retirement security must be recognized as a shared responsibility. No single entity can solve it alone,” she says. Globally, the report shows people expect almost half of their retirement income (46 per cent) to come from government retirement benefits, with Spain reporting the highest expected percentage (64 per cent) and India the lowest (25 per cent). It shows most people feel that reform is needed as 31 per cent globally believe that the government should increase overall funding for social security-type benefits through raising taxes, without having to reduce the value of individual payments; 15 per cent globally feel that the government should reduce the overall cost by reducing benefits, without having to increase taxes; and 27 per cent globally feel that the government should take a balanced approach.

Largest Demographic Shift Into Retirement

The largest demographic in Canadian history is shifting into retirement. There are now more Canadians over 65 than under the age of 15, says Mercer Canada’s ‘Post-Retirement Benefit Trends Poll.’ This cohort, it says, is bringing into focus the very real costs of benefits during retirement, including health, life, and travel insurance. However, less than 30 per cent of employers offer post-retirement benefits to future retirees, down from more than 40 per cent 15 years ago. Over the past four years, 22 per cent of survey respondents made reductions to their retiree plans, often closing retiree plans to new hires with escalating costs likely to blame. Retiree benefit plan costs have increased 150 per cent since 2000 and specialty drug costs are expected to increase 25 to 35 per cent in the next three years. Going forward, a further 17 per cent of employers plan to make reductions to their offerings and the 71 per cent of employers who do not offer retiree benefits say they will not consider providing such a plan in the future. “However, many employers continue to see benefits for retirees as a means to enhance attraction and retention. They may be looking for alternatives that provide access to flexible and affordable coverage and require no company contribution,” says Brian Lindenberg, head of the health and benefits business at Mercer Canada.

Asset Owners Evaluate Smart Beta

The percentage of asset owners currently evaluating smart beta has more than doubled from 15 per cent in 2014 to 36 per cent in 2016, says FTSE Russell’s third annual global institutional market survey, ‘Smart Beta: 2016 Global Survey Findings from Asset Owners.’ As well, 62 per cent of asset owners with an existing smart beta allocation are now evaluating additional allocations. It finds the strongest growth in smart beta adoption is among asset owners with less than $1 billion in assets. Return enhancement and risk reduction continue to be the primary objectives for use of smart beta by asset owners, while cost savings are more important in 2016 than in years past. The percentage of asset owners using five or more smart beta indexes increased significantly, from two per cent in 2014 to 21 per cent in 2016.

Vacation Time Inadequate

More than half of Canadian professionals (52 per cent) feel they don't have enough vacation time, says a survey by Accountemps. However, it shows professionals plan to take an average of 11 vacation days this summer and 30 per cent plan to take more vacation days this summer than last year. Reasons some professionals aren't reaping the full benefits of time off include worries about their colleagues absorbing their workload and concerns about the amount of work that would await them when they returned. As well, 36 per cent of workers admitted to checking in with the office at least once or twice a week while on vacation. Dianne Hunnam-Jones, Canadian president of Accountemps, says "Workers need to recognize that taking the time to unplug is essential for their own well-being, allowing them the chance to return refreshed and better motivated." Managers should make their own vacation time a priority in an effort to encourage their teams to do the same.

Real Asset Trend Examined

An identifiable trend in a gradual increase in exposure to real assets ‒ real estate, infrastructure, farmland, and timberlands ‒ into portfolios will be examined at ‘WAIS 2016 Canada.’ The session will examine the impact of an increased exposure to a range of real estate assets can have on a portfolio such as reduced volatility, and potentially higher returns. Another session will look at how absolute return fixed income is best defined and some general characteristics that investors should be aware of when evaluating the asset class. It takes place September 7 to 9 in Niagara Falls, ON. For information, visit WAIS 2016

May 26, 2016

Active Investors Key Ingredient

Active investors like the CPPIB Investment Board (rather than the buy-high/sell-low short-term traders) are a key ingredient of functional capitalism, says Keith Ambachtsheer, president of KPA Advisory Services Ltd., and director emeritus of the International Centre for Pension Management Rotman School of Management at the University of Toronto. In an open letter to Andrew Coyne, he responds to the May 18 National Post Column ‘CPP Board Can’t Escape Blame For Fund’s Bloated State,’ where readers were told that the manager of their collective CPP nest egg had a “conspicuously bloated” organization, and had “plunged into an increasingly esoteric risky range of private investments” for “no appreciable [financial] pay-off. However, long-term investors like the CPP board who have systematic (legal) access to a broad range of macro and micro information and, on average, interpret and use it correctly, consistently outperform ‘the market’ by statistically significant margins. “It is these kind of investors who transform retirement savings into wealth-producing capital,” says Ambachtsheer. The letter is at CPP Response

Public Drug Spending Increases

Spending by Canadian public drug plans increased by an average of two per cent in 2013/14, reversing a multi-year trend of low or negative growth, says the Patented Medicine Prices Review Board. The second edition of ‘CompassRx,’ its annual report that monitors major developments in drug pricing and reimbursement in Canada, says this was due to a surge in the use of higher-cost drugs, such as biologics, and a substantial reduction in savings from the use of lower-priced generic versions of brand-name drugs. As anticipated in last year's report, these findings suggest that the ‘patent cliff’ era of recent years, which saw public drug plans benefit from many top-selling ‘blockbuster’ brand-name drugs of the past decade reaching the end of their patent terms and facing generic competition for the first time, has run its course. Of the few remaining blockbuster drugs on the Canadian market, none lost patent protection in 2013/14. In addition to increased spending on high-cost drugs, in recent years most public drug plans have been spending more on dispensing costs, which grew by 5.9 per cent or $122.2 million in 2013/14 and accounted over time for a greater share (22.3 per cent) of overall public drug plan spending on prescription drugs. Canadian public drug plans reimbursed their active beneficiaries for 78.7 per cent of overall drug expenditures in 2013/14, totaling $9.8 billion. This included $7.3 billion in drug costs, $2.2 billion in pharmacy dispensing costs, and $300,000 billion in markups. The report covers public drug plans in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, and Health Canada's non-insured health benefits drug plan.

Canadian Managers May Get Passport

Canadian managers registered with a Canadian securities administrators can hope that the European Union (EU) passportregime will be extended to them in the near future, says a Lavery ‘Capital.’ To date, non-EU managers have been hampered by the complexity of marketing without the benefit of a passport, under a regime which is left to the discretion of each EU member state in which they wish to market their alternative investment funds (AIFs). This situation is set to change in the near future by eventually enabling non-EU managers to benefit from a similar regime to that applying to EU managers who are able to use the European passport regime. While the European Securities and Markets Authority (ESMA) has still not completed its analysis of the legislation of these countries, ESMA considers the current investment fund regulations in Canada more favourable to the extension of the passport to this country than those in the United States. It has been asked to submit its opinion on Canada by no later than June 30. In the meantime, Canadian managers wishing to market investment funds in EU-member countries have no other choice but to rely on the national private placement regimes of each of these countries, or opt for reverse solicitation where possible.

Funds-of-funds Favourite Vehicle

Funds-of-funds are North American pension funds' favourite vehicle for private equity investments, says data from Preqin. It shows 71 per cent of both public and corporate pensions prefer the strategy. While funds-of-funds had among the lowest median internal rate of return of private equity fund types for every vintage year from 2000 to 2013, they were also the least volatile across the same years due to their inherent diversification. On average, public funds targeted an 8.3 per cent allocation to private equity, while private funds aimed for 7.3 per cent.

Coalition Launches National Drug Plan Policy

The Canadian Health Coalition is launching its policy brief ‘A National Public Drug Plan for All.’ It brings together academic studies showing the financial savings, improved drug safety, and increased equality that would occur under a national public drug plan. Canada remains the only country with a universal health system that doesn't include prescription medicines. This paper is launched while the House of Commons' Standing Committee on Health is studying the development of a national pharmacare program and while members of the coalition are meeting with their MPs in a Canada-wide constituency lobby.

Gluskin Joins Board

Ira Gluskin has been added to the advisory board at Vision Capital Corporation. He co-founded Gluskin Sheff + Associates Inc. in 1984 and it is now one of Canada's pre-eminent wealth management firms, servicing high net worth private clients, estates, trusts, and institutional investors. Prior to co-founding Gluskin Sheff, he worked in the investment industry for 20 years.

State Of Green Building Examined

The Canada Green Building Council’s ‘Building Lasting Change 2016’ is designed to provide insight, education, and information about the state of green real estate in Canada. It will feature a plenary panel on ‘GRESB: Driving Green Building in Canada's Real Estate Sector’ featuring Amy Erixon, principal and managing director – investments at Avison Young; Chris Pyke, chief operating officer of GRESB.com; Stephen Taylor, vice-president, real estate, at the Healthcare of Ontario Pension Plan (HOOPP); and Paul Zemla, chief investment officer, Canada, at Bentall Kennedy. It takes place June 6 to 8 in Toronto, ON. Visit www.cagbc.org

ESOP Features Insights

The ESOP Association of Canada’s ‘2016 Canadian Employee Ownership Conference’ will feature insights from some of Canada’s leading employee owned companies, as well as advisors and experts who can demystify the process. An expert panel will discuss ‘The Future of ESOPs.’ It takes place June 7to 9 in Kelowna, BC. For information, visit http://esopconference.ca/

May 25, 2016

Hedge Funds Don’t Deliver Returns

Where many funds are promised superior uncorrelated returns from hedge funds, they actually receive neither, says a study by CEM Benchmarking. It found the average correlation to simple stock/bond portfolios was 84 per cent and for over half of funds correlations exceeded 90 per cent. These results would not be disappointing except for the fact that 70 per cent of funds underperformed the simple benchmarks and the average fund underperformed by 1.88 per cent. “Most hedge fund portfolios look surprisingly like simple stock/bond portfolios. Worse, what little alpha is generated goes to the hedge fund managers and then some,”says Alexander Beath, a senior research analyst and lead author of the study. What he findsmost surprising is just how much of the return of hedge funds can be replicated by simply holding a 50/50 stock/bond portfolio. While most funds underperformed the CEM benchmark, 30 per cent beat the investable index. It discovered funds that had outperforming hedge fund portfolios were funds with long histories investing in hedge funds as they tended to outperform those with short histories and funds with lower correlation to equity/debt blends also tended to outperform those with high correlations.

MS Efforts Lacking

While Canada has the highest rate of Multiple Sclerosis (MS) in the world, it may not be doing enough in terms of providing appropriate workplace accommodations and income supports for this population and their caregivers, says a report by the Conference Board of Canada’s Canadian Alliance for Sustainable Health Care (CASHC). “When people living with multiple sclerosis or their caregivers are unemployed or underemployed, it is often detrimental to their health and financial situation. It also has a larger overall economic impact due to lost productivity,” says Thy Dinh, director of health economics at the Conference Board. “Increasing workforce participation of individuals living with MS and their caregivers would benefit not only the individual’s well-being, but also provide significant benefits to employers, government, and society as a whole.” Canada has the highest prevalence of MS in the world. As well as being an important health issue, this creates significant economic costs for individuals and the wider economy, as much as $2.8 billion annually.

Canadians Want Climate Resolutions Supported

More than 2,000 Canadians have contacted their pension funds to urge them to support climate resolutions at the ExxonMobil and Chevron annual general meetings, says the Asset Owners Disclosure Project. Some 1,386 people have used the ‘Vote Your Pension’ platform to contact the Canada Pension Plan Investment Board and 915 have used it to contact Ontario Teachers Pension Plan urging them to support resolutions at both companies’ AGMs tomorrow that would put the two biggest U.S. oil majors on a low-carbon pathway. Julian Poulter, CEO of the Asset Owners’ Disclosure Project, says “This is a seminal moment in the low carbon transition. The Exxon and Chevron resolutions show how investors are waking up to climate risk and driving big oil to change.”

Canada Lags In Drug Wait Times

Canadians face wait times of about 449 days in order to get access to new, potentially life-saving medicines in public drug plans, says an IMS Health Canada Inc. report commissioned by Innovative Medicines Canada. The ‘2016 Access to New Medicines in Public Drug Plans: Canada and Comparable Countries’ finds Canada's public drug plans are seriously lagging compared to other similar OECD nations. It found in Canada that 59 per cent of cancer medicines were covered in public drug plans, ranking Canada in 17th place of 20 countries. Canadian public drug plans placed reimbursement conditions on 90 per cent of new medicines, ranking Canada 17th of 20 countries. In Canada, only 23 per cent of new biologic medicines were reimbursed in public drug plans, putting Canada in 19th place of 20 countries."Compared to similar countries, Canadian patients have access to fewer new medicines and also face long delays for the drugs that are covered under public drug plans," says Brett Skinner, executive director, health and economic policy, at Innovative Medicines Canada.

Brexit Creates Hurdles

Nearly 54 per cent of respondents expect sales of funds across Europe to be affected to varying degrees should the UK pull out of the EU, says Cerulli Associates. Just over 30 per cent foresaw some hurdles to doing business for up to three years, while 15.4 per cent predicted long-term disruption that would require new distribution and sales strategies. Just under eight per cent of respondents envisaged difficulties for up to 12 months. The largest individual grouping ‒ 46 per cent of those polled ‒ did not feel that a Brexit would affect sales. "Cerulli believes that if only half of asset managers' worries about Brexit are justified, then the industry should be firmly in favour of remaining in the EU," says Barbara Wall, Europe managing director at Cerulli, adding that the vast majority of asset managers seem to regard voting to remain as a no-brainer, even if an exit would only cause anxiety and inconvenience rather than a catastrophe. The referendum takes place June 23.

Investors Underestimate Risk

More than three-quarters of investors agree that index funds and exchange traded funds (ETFs) are a cheaper way to invest. However, 71 per cent also believe they are less risky, says research published by Natixis Global Asset Management. The findings suggest that many investors have expectations that don’t reflect a full understanding of the risks of index funds versus the benefits. It found that 64 per cent of investors think using index funds will help minimize investment losses, 69 per cent believe index funds offer better diversification and 61 per cent believe index funds provide access to the best investment opportunities in the market. However, investors expecting lower risk may have been surprised at the start of 2016 when the Standard & Poor’s 500 had its worst opening since 1928. The index bottomed out on February 11, having fallen 10.5 per cent since trading began in January.

Biosimilars Discussed

‘Catching Up on Biosimilars: A new horizon to help save on the cost of biologic drugs’ will be discussed at a CPBI Southern Alberta region session. Bruno Mäder, vice-president of the biologics and diversified products division for Merck Canada, and Leila Mandlsohn, a pharmacy consultant in the GSC pharmacy and market strategy team, will explain what biosimilar drugs are and whether they are viable alternatives to name brand biologic drugs; why they are important and how they can help manage drug plan costs; and key opportunities and challenges associated with the advent of biosimilars in Canada. It takes place June 16 in Calgary, AB. For information, visit Biosimilars

May 24, 2016

Dismantling Public Pensions Backfires

A decades-long push by fiscal conservatives to dismantle public employee pensions in the U.S. has backfired by unleashing economic, financial, and revenue volatility, says the National Conference on Public Employee Retirement Systems. Negative pension reforms – such as cutting benefits, increasing employee contributions, and adopting plans that force retirees to shoulder all risk – have contributed to disruptive swings in the economy since the 1980s, says ‘Economic Volatility: Hidden Societal Cost of Prevailing Approaches to Pension Reforms.’ In one key area of focus, the study looked at the how the percentage of the workforce that is shifted to defined contribution plans, such as 401(k) plans, impacts volatility. It found that for each one per cent shift to DC plans economic volatility, as measured by changes in median income, rises two per cent; financial volatility, as measured by changes in the S&P 500 stock index, rises eight per cent; and revenue volatility, as measured by changes in total U.S. revenues, rises 54 per cent.

Active Share Risk Levels Elevate

Funds with a higher active share exhibit different style factor exposures than their respective category benchmark, says Morningstar’s ‘Manager Research Observer Canada.’ It says this can be in terms of sector, style, or market cap exposure. For example, funds with high active shares use small caps to a much larger extent than funds with lower active share. This could partly explain the elevated risk levels observed previously for very active funds. Because of their strong deviation from the benchmark, investors selecting highly active funds can end up with funds that invest differently than they would expect.

Broader View Adopted

More U.S. employers have adopted a broader view of workforce health that includes physical, mental, emotional and financial health, says a Willis Towers Watson survey. Nearly two-thirds (64 per cent) of U.S. employers say that by 2018, they will focus on developing a workplace culture that supports employee well-being as a primary strategy to boost health engagement, says the 2015/2016 ‘Staying@Work Survey.’ This is a significant shift as just one-third (34 per cent) say it was a core strategy in 2015. It found that 47 per cent include financial well-being as a key part of their overall workforce well-being strategy today, and 80 per cent expect to include it by 2018.

Impact Investment Allocations To Grow

Investors committed more than $15 billion to impact investments in 2015 and plan to allocate even more this year, says the Global Impact Investing Network (GIIN). It found that 79 per cent planned to maintain or increase their impact investments in 2016. In total, respondents said they planned to commit nearly $18 billion to the sector this year. Nearly three quarters said their investments performed as expected in 2015, with 19 per cent reporting outperformance versus expectations. Just 11 per cent said their impact investments underperformed last year.

Millennials Less Interested In Benefits

Compared to their older colleagues, younger ‘Millennial’ workers (those born from the early 1980s to early 2000s) are far less likely to know about health and retirement benefits or to consider them as important, says the EBRI’s ‘2015 Health and Voluntary Workplace Benefits Survey (WBS).’ The findings suggest that the traditional lure of benefits to attract and retain workers is far less potent among Millennials, and that other inducements may be needed. For instance, Millennials are more likely than older Gen Xers or Baby Boomers to report that they value life insurance and paid time off as the most important benefit. Health insurance remains by far the most important employee benefit regardless of age cohort. But Millennials are less likely than Baby Boomers and Gen Xers to say it is the most important benefit.

Managers Must Cope With ‘Triple Whammy’

Due to a ‘triple whammy’ of challenges this year, asset managers must adapt to cope with these new threats, says a survey by Multifonds. The challenges include a growing threat from disruptive technology, the continuing barrage of regulation, and general market turmoil. Over half (54 per cent) of respondents believe a new game changing disruptor, such as Amazon or Google, will enter the market in the next two years. In terms of regulation, Markets in Financial Instruments Directive II (MiFID II) is the regulation causing most concern among asset managers and administers, cited by over half of respondents to the survey, followed by Ucits V by 45 per cent.

Machin Heads CPPIB

Mark Machin is president and chief executive officer, effective June 13, of the Canada Pension Plan Investment Board (CPPIB). Currently, he is senior managing director and head of international. He joined CPPIB in March 2012 and has been responsible for the organization's international investment activities, managing global advisory relationships and leading the organization internationally. Prior to joining CPPIB, he had a 20-year career at Goldman Sachs.

Sirois Moves To Retail

Claude Sirois is president of Ivanhoé Cambridge Retail. Until recently, he served as executive vice-president, shopping centres, North America, at Ivanhoé Cambridge Inc.

ESG Specialists At RIA

The ‘2016 RIA Conference’ will offer an opportunity to network with leaders in responsible investing, to hear from ESG specialists and thought leaders, and to learn about the latest issues, trends, and developments in the field. It takes place June 6 and 7 in Toronto, ON. Visit r20.rs6.net


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