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June 30, 2016

CFIB Wants CPP Impact Revealed

The Canadian Federation of Independent Business (CFIB) wants to know if any government did an economic impact analysis before signing on to the agreement to enhance the Canada Pension Plan (CPP). It has filed Freedom of Information (FOI) requests with all eight provinces that signed the agreement, as well as the federal government. "It's disappointing enough to see finance ministers put Canadian jobs in jeopardy," says Dan Kelly, CFIB president. "To do it behind closed doors, without the public consultation promised in the 2016 federal budget or any economic impact analysis, on a short and arbitrary deadline, is irresponsible." It is urging governments to delay finalizing the deal until consultation can take place, make amendments to soften the impact of any CPP enhancements, and implement compensating measures to help small firms adjust.

Stress Ranked As Top Concern

A majority (85 per cent) of Canadian employers ranked stress as their top health and productivity concern, but employers and employees disagreed on its causes, say surveys by Willis Towers Watson. Employers and employees had two factors in common in their top three choices: inadequate staffing, which employees ranked number one and employers ranked number three; and excessive amounts of organizational change, which was ranked number three by employees and number two by employers. Opinions diverged after that. Survey results further reveal that employer opinions regarding key workplace stressors tended to fall into one of two categories: large organizational issues such as change and ubiquitous technology connections that can make employees feel that they are always on the job. In contrast, employees pointed more directly to specific elements of their personal work experience as key stressors. For example, they cited low payas the second leading cause of stress, while employers ranked low pay as 12th on a 14-item list. Conversely, employers identified insufficient work/life balance as the top stressor for workers, while employees ranked it at number eight. “To address the issue of workplace stress, employers first need to identify the root causes from the employee’s point of view,” says Julia Graham, Canadian division leader, absence, disability and health management at Willis Towers Watson. “If workplace strategies are based on inaccurate assumptions, employers run the risk of spending money on initiatives that won’t solve the problem and may alienate employees in the process.”

Morneau Shepell Works With Allianz

Morneau Shepell will work together with Allianz Worldwide Care, the Dublin, Ireland-based, international health and life insurance company, to provide a range of specialist health and wellness support to expatriate workers around the world as a core component of Allianz's corporate assistance services. Through Morneau Shepell's worldwide network, Allianz will be providing access to immediate and confidential, culturally relevant counselling 24 hours a day, seven days a week, 365 days a year.

PSP Expands Footprint In India

PSP Investments has expanded its footprint in India’s highways sector, assuming ownership of four toll roads totalling 710 kilometres in a transaction with Spanish infrastructure company Grupo Isolux Corsan. PSP has renamed Isolux Infrastructure as ROADIS, a highways platform. ROADIS, which owns four road assets in India and five others across Mexico, Brazil, Spain, and the U.S. totalling 1,644 kilometres, has now become its subsidiary. In May, Isolux Corsan separated Isolux Infrastructure from itself in order to transfer a portfolio of nine global road assets to PSP

Pavilion Looks At Altius

Pavilion Financial Corporation plans to acquire Altius Holdings Ltd., the parent company of Altius Associates Ltd. and Altius Associates (Singapore) Pte. Ltd., a global private markets advisory and separate account management firm with offices in the UK, U.S., and Singapore. Pavilion will combine the operations of Altius with LP Capital Advisors, LLC, its alternative asset advisory subsidiary. The combination will create a larger global alternative asset class advisory platform with expanded depth and breadth of services and geographic footprint.

Caisse Invests In Eurofins

The Caisse de dépôt et placement du Québec has invested in Eurofins, a world leader in food, environment, and pharmaceutical products testing. The company operates in Europe, North and South America, and Asia-Pacific. After several strategic acquisitions and due to a sustained organic growth over the past five years, Eurofins has become one of the world’s leading networks of testing laboratories in its main sectors of activity.

Globalization Accelerates

The success of 'Global Fixed Income' often comes down to assessing the risk of foreign economies and how they might affect portfolios. Navigating these markets has been difficult and sometimes costly, but the acceleration of globalization increases access to necessary investment information. This Benefits and Pensions Monitor Meetings & Events session will assemble experts on world economies and global investing. It takes place September 14 in Toronto, ON. For information, visit Global Fixed Income

June 29, 2016

Manitoba Sees CPP Opportunity

“The near federal-provincial consensus of the desirability of affordable CPP enhancement gives us a unique opportunity to get this right,” says Brian Pallister, the new premier of Manitoba. And its proposed enhancements to the Canada Pension Plan (CPP) Agreement in Principle (AIP) “would make the CPP more responsive to the realities of the generation to come.” These proposals include eliminating the clawback of guaranteed income supplement payments for widowed and low-income single seniors. It is also calling for the indexation of the death benefit. The CPP death benefit provides a maximum one-time payment of $2,500 to the estate of a deceased CPP contributor.This maximum was set in 1997 and frozen, substantially reducing the value of the benefit over time. Manitoba believes the maximum death benefit should begin to grow with inflation as part of this CPP enhancement. As well, the phase-in of the upper earnings limit should be extended. It would phase in the enhanced YMPE to four years from two. It also wants a comprehensive review of the other CPP benefits.

Brexit Hurts Solvency

The solvency ratio of a typical Canadian pension plan has fallen by almost three per cent since the Brexit vote results were announced, says the ‘Mercer Pension Health Index.’ The Brexit impact pushed the solvency ratio of most pension plans firmly into negative territory for the first half of 2016 with the median solvency ratio of the pension plans of its clients at 82 per cent on June 27, down from 85 per cent at the beginning of the year and from 85 per cent just before the vote. The solvency ratio of a hypothetical plan finished the first half of the year at 88 per cent, down from 93 per cent at the beginning of the year. The decline in funded status during the first half of 2016 is also due to declines in long-term bond yields, weak global equity markets, and the strengthening Canadian dollar (which negatively impacted the return on unhedged foreign assets). “The Brexit vote has clearly increased the level of geo-political and economic uncertainty which probably means increased volatility for pension plans for months if not years to come,” says Manuel Monteiro, leader of its financial strategy group.

Target Date Offers Hope

With almost $4 billion in unused employer matched contributions and nearly 90 per cent of new members going into the default investment option, target date funds (TDFs) are a profoundly important topic in the discussion of defined contribution plans, says Bradley Hicks, managing director – Canada, with MFS Investment Management Canada Ltd. Speaking at the Benefits and Pensions Monitor’s Meeting & Events Division’s session on ‘Target Date Funds,’ he said TDFs give sponsors “a huge chance to change the outcome for members.” Right now, people in the industry spend a lot of time talking about whether TDFs are passively managed, whether retirement plans are getting to retirement or through retirement, how to measure investment manager success, and the value of risk management. Instead, they should spend their time getting a thorough understanding of the provider’s glidepath and philosophies to make sure these match the needs of plan members and strive for more dynamic and informal analyses. He said sponsors need to remember the end user – the member – and how they can smooth the ride for them.

OSFI Wants PRPP Cost Recovery

Pension rules need regulatory amendments to enable the Office of the Superintendent of Financial Institutions (OSFI) to recover costs for over-seeing pooled registered pension plans (PRPPs).Existing regulations prescribe the formula used to determine the annual assessments for private pension plans, but do not include provisions for recovering expenses from PRPPs, which are a new pension option. It says the supervisory costs for PRPPs are expected to be similar to the supervisory costs for definedcontribution pension plans.

Target Date Funds New Default

Target date funds (TDFs) are basically the new default investment in defined contribution plans and provide members with the same investment opportunity set as defined benefits plan members, says Pat Leo, director, business development, Ontario and Western Canada, Sun Life Global Investments (SLGI). He told the Benefits and Pensions Monitor’s Meeting & Events Division’s session ‘Target Date Funds,’ it is imperative that the default option matches the needs of all plan members. And, it seems as though TDFs are doing well and make sense for members. However, only time will tell as there is only a few years’ worth of data. TDFs are a part of the evolving nature of default investment options. For example, 54 per cent of plans in Sun Life Group Retirement Services have their default option in TDFs. Also, four in five new plans are choosing TDFs as their default and more than 65 per cent of plans over $2 million have TDFs in their line-up. The asset mix within TDFs is also evolving, showing a 10 per cent increase in the allocation to alternatives from 2010 to 2016, which reduces overall risk, he said. Fixed income will also have a huge impact on the funds. Finally, on a net return basis, members using an automatic de-risking target date solution are seeing better results than those going it alone.

Level Of Engagement Differs

Despite low-to-moderate economic growth in both regions, there is a contrast in the progress that companies in Canada and the U.S. have made to improve employee engagement levels, says research from Aon Hewitt. Its ‘Trends in Global Employee Engagement’ study shows U.S. companies saw modest improvement in overall engagement scores from 63 per cent in 2014 to 64 per cent in 2015. However, across the 15 different engagement dimensions measured in the report, 12 improved, including four out of the five top engagement drivers ‒ employee value proposition, talent and staffing, enabling infrastructure, career opportunities and performance management. However, it found a vastly different outcome in Canada. While Canada has higher engagement levels than the U.S. (69 per cent), there was no change in engagement levels from 2014 to 2015. The top engagement drivers were the virtually same in the U.S. and Canada, with just senior leadership replacing performance management in the top five drivers. However, unlike the U.S, Canada only had one improvement across the 15 engagement dimensions measured in the report ‒ a one-point gain in work fulfillment. "Low growth and high unemployment in western Canada and Newfoundland and Labrador due to depressed oil and commodity prices are driving higher engagement in these regions for those who still have jobs as employee expectations are brought into line with reality," says Neil Crawford, leader of Aon Hewitt's talent practice in Canada. "At the same time, lower oil costs and a lower Canadian dollar are fueling modest growth in central Canada, tightening labour markets and putting pressure on employee expectations. The net effect is very little year over year change in overall perception of the work environment."

Professional Management In DC ‘A Good Thing’

Nearly half of defined contribution plan participants are not constructing their own portfolios anymore and that’s probably a good thing, says Jean Young of the Vanguard Center for Investor Research. At the Benefits and Pensions Monitor’s Meeting & Events Division’s session ‘Target Date Funds,’ she said Vanguard predicts in another five years that number will be much higher. It’s a good thing because its recordkeeping data shows that members who choose to do their own investing show no difference in asset allocation based on age. Those invested in single target date funds (TDFs) have portfolioswhich are more properly structured for their age. She said basically the outcomes of DIY investors’ portfolios is ‘a hot mess.’ However, while TDFs improve plan member portfolios on the investment front, “the real challenge now is on the savings rate front.”

Committees Give Up At Times

Investment committees have a significant flaw: the tendency to give up on a strategy during rough times, says Russell Investments. This act of capitulation can have “the most negative impact on investment results,” says Michael Thomas, its managing director of investment outsourcing. This can evolve into a pattern of selling low and buying high as the investor seeks to recoup foregone returns as exiting a sound strategy after a stretch of bad performance is one of the biggest weaknesses of many institutional investment programs, he says in a blog. However, these committees can’t help second-guessing underperforming strategies as a typical structure can create an environment in which it is difficult to stand by an investment once it begins to go south. To avoid second-guessing and even panic-selling, investment committees should frequently review objectives and investment beliefs, define how each investment contributes to these goals and beliefs, and understand possibilities of underperformance.

Hydro Project Gets Investment

Connor, Clark & Lunn Infrastructure has invested in the 12 megawatt Hunter Creek Hydro Project, a construction-stage, run-of-river hydro-electric project located near Hope, BC. Concurrent with its equity investment, CC&L Infrastructure and its partner, WindRiver Power Corporation, also closed long-term debt financing for the project. The project is the second in a portfolio of hydro projects that CC&L Infrastructure and WindRiver are developing together. The project is scheduled to achieve commercial operation in mid-2018. All power produced by the facility will be sold to British Columbia Hydro & Power Authority under a 40-year electricity purchase agreement.

Brexit Explained

Lord William Hague, former UK foreign secretary and leader of the House of Commons, will share his insights on the complex socio-political and economic ramifications of the United Kingdom’s decision to leave the European Union at an Economic Club of Canada discussion. It takes place July 6 in Toronto, ON. For information, visit Brexit

June 28, 2016

SHARE Wants ESG Added

The Shareholder Association for Research and Education (SHARE) wants the Canadian Association of Pension Supervisory Authorities (CAPSA) to add a further question to its ‘Frequently Asked Questions’ document in the revised ‘CAPSA Guideline No. 4: Pension Plan Governance.’ This question should address the relevance of ESG (environment, social, and governance) factors to pension investments. In its submission on the guideline, it says while the specific wording of this question and response is best addressed by CAPSA, ‘we recommend that the question examine the appropriate disclosure of whether and, if so, how plan administrators take ESG factors into account in investment decision-making. This approach is consistent with recent changes to Ontario’s Pension Benefits Act regulations which ask administrators to report annually on this question, it says. The response could include a brief overview of why ESG factors may be relevant to investment outcomes; clarification of the long-term investment horizon necessary for pension investments; a positive statement clarifying that consideration of ESG factors can be consistent with fiduciary duty; and an example of an ESG factor that is relevant to pension investments, such as climate change-related risks.

REITs Perform Best

A CEM Benchmarking study, sponsored by the National Association of Real Estate Investment Trusts (NAREIT), highlights a compelling disconnect between the increasing reliance by the largest pension funds in the U.S. on some alternative and real assets, most notably hedge funds, and the net investment performance of these assets, which have underperformed lesser allocated assets, such as listed equity REITs. ‘Asset Allocation and Fund Performance of Defined Benefit Pension Funds in the United States Between 1998-2014’ shows these were the best-performing asset class over the study period while hedge funds were the second-worst. Listed equity REITs outperformed all other 11 assets in the study, generating average annual net returns of 11.95 per cent. Average annual investment costs of 0.51 per cent, the lowest of any of the alternative or real estate asset groups, contributed to REITs’ net return performance.

Tiered Plan Use Grows

Nearly half (48.9 per cent) of employer-sponsored prescription drug plans in America utilize three tiers and 44.1 per cent offer four or more, an increase of 34 per cent from 2014 to 2015 and a 58 per cent increase since 2013, says ‘Trends in Prescription Drug Benefits’ from United Benefit Advisors (UBA). "The fourth tier (and additional tiers) pays for biotech drugs, which are the most expensive. By segmenting these drugs into another category with significantly higher co-pays, employers are able to pass along a little more of the cost of these drugs to employees," says Les McPhearson, CEO of UBA. "This is a rapidly growing strategy to control costs." Another significant cost control measure used by a majority (61.8 per cent) of employers is the requirement that employees pay more when they elect brand-name drugs over an available generic and 37.9 per cent of those plans require the added cost even if the physician notes "dispense as written."

OMERS Prepared For Brexit

OMERS was prepared for the results of the Brexit vote. It says it anticipates high volatility over the coming days and weeks and is highly focused on managing through this situation using comprehensive analysis and strategic decisions, including managing currency risk. Its private market assets in the UK were purchased with a long-term perspective that it believes will generate solid returns for its pensioners. Its investment portfolio is highly diversified and reflects the careful, disciplined selection of high-quality assets, making OMERS well-positioned to weather the market volatility.

Model-based Approach Captures Risk

The model-based approach is the only framework that correctly captures the counter-party risk presented by non-centrally cleared OTC derivatives, says an EDHEC-Risk Institute publication. ‘Initial Margin for Non-Centrally Cleared OTC Derivatives – Overview, Modelling and Calibration’ provides a detailed overview and analysis of the forthcoming new framework to be used by large financial institutions to determine initial margin (IM) and variation margin (VM) payments when trading non-cleared over-the-counter (OTC) derivatives. It also sets out the modelling requirements specified by the BCBS/IOSCO Working Group on Margin Requirements (WGMR) and discusses modelling implementation issues. In particular, the fact that the framework prevents the risk of assets with multiple market factors from being netted fully is discussed. Coming into effect in September, this framework is a response to the events of September 2008 which saw the bankruptcy of Lehman Brothers, the bailout of AIG, and the federal takeover of Fannie Mae and Freddie Mac, all of whom had large exposures to the OTC derivatives market. The result of these regulations is that banks must hold initial margin collateral. This is intended to protect banks against any close-out loss on the bilateral set of non-cleared OTC derivatives that they would have with a defaulted counter-party. The paper is at Initial Margin

TDAM Joins ETF Group

TD Asset Management Inc. (TDAM) has joined the Canadian ETF Association (CETFA). CETFA now has seven ETF provider members that collectively represent 95 per cent of the ETF assets in Canada. TDAM launched six passive ETFs funds this spring. CETFA is the national voice of Canada’s ETF industry, representing the majority of ETF providers in Canada. Canadian investors have over $100 billion invested in over 400 Canadian-listed ETFs.

Appointments Made By CPPIB

Alain Carrier is senior managing director, head of international, at the Canada Pension Plan Investment Board (CPPIB). He also becomes a member of its senior management team. In this role, he is responsible its international investment activities and will also continue as head of Europe. He has been with CPPIB since 2008 and has more than 23 years of financial industry experience, which includes senior roles at Goldman Sachs & Co. Suyi Kim is managing director, head of Asia, responsible for overseeing its portfolio of Asian investments. She joined CPPIB nine years ago, establishing its first international office in Hong Kong. Deborah Orida is managing director, head of private equity, Asia. She is responsible for leading private investments in Asia with a focus on both direct private equity investments and fund commitments. She joined CPPIB in 2009 and was, most recently, managing director, head of relationship investments international.

Subban’s Father Speaks At CPBI

The 2016 joint ‘Regional Conference for Ontario and Quebec’ delegates is the first of its kind for CPBI. Keynote speaker is Karl Subban, father of professional hockey player P. K. Subban. He will talk about inspiring five children, three of which have been drafted by the National Hockey League. Workshops will be held on drug plan management, mental health, decumulation, and solvency funding. It takes place September 12 to 14 in Mont Tremblant, QC. For information, visit Ontario CPBI

June 27, 2016

Brexit Opens Pandora’s Box

The victory of the ‘Leave’ camp in the ‘Brexit’ referendum will open a Pandora's box for the UK, the rest of Europe, and the global economy, says Stephen Saint-Leger, managing director of Cambridge Associates. The first casualty could well be the UK's political system. The referendum is only ‘advisory,’ meaning that an act of parliament is needed to initiate the process of separation. Assuming parliament does pass such an act, the European Union will likely play hardball in negotiations in order to make an example out of the UK and to underscore its core principles: in particular, that there can be no free trade access without the free movement of people. For investors, it is not all bad, he says. UK equities should benefit from the depreciation of Sterling. Global equities, on the other hand, may tumble, as investors interpret the successful populist backlash against the status quo as the thin edge of the de-globalization wedge. But a prolonged downdraft in equity markets that threatens to spill over into the real economy is likely once again to trigger a response by the authorities ‒ for example, a temporary suspension of fiscal austerity measures. This could actually provide an attractive opportunity to re-balance into equities. For more on the Brexit result, see ‘Breaking Up Is Hard To Do: Brexit Update’ at the Benefits and Pensions Monitor website.

Cost Relief On Horizon

There may be some drug plan cost relief on the horizon from biosimilars, says Bruno Mäder, vice-president biologics and LOE brands for Merck Canada. Speaking at the ‘Catching up on Biosimilars’ CPBI Southern Alberta session, he said in order for biosimilars to be an option for plan sponsors, there needs to be a viable marketplace. For example, it has been about nine months since Inflectra (the biosimilar version of Remicade) was introduced to the Canadian marketplace and only 391 prescriptions have been filled in that time period versus about 30,000 for Remicade. If this was a small molecule drug, sales of the original would have dropped by about 80 per cent to 90 per cent within the first few months as patients migrated to the new generic. There are several forces working against biosimilar entry in Canada. Originators are motivated to protect their brands and offer incentives though patient support programs and there is reluctance from physicians to accept biosimilar drugs and prescribe them. Leila Mandlsohn, pharmacy consultant at Green Shield Canada said “physicians won't change prescribing unless they have to due to coverage.” As a result, “we need to offer innovative solutions.” There is currently some movement to require subsequent entry biologics (SEBs) or biosimilars be prescribed for new prescriptions when the patient has not already started taking the original. She also says many physicians are unfamiliar with SEBs so their familiarity with these drugs needs to increase through education in order to help increase their acceptance.

Women Injure Necks More

Women who do the same tasks as men often face a higher risk of musculoskeletal disorders (MSDs) in their neck and upper limbs. That was Dr. Julie Côté’s key message at the ‘9th International Scientific Conference on the Prevention of Work-Related Musculoskeletal Disorders (PREMUS 2016).’ The associate professor and chair of the department of kinesiology and physical education at McGill University said that higher risk may be due to both biological (sex) differences as well as differences in social roles, activities, and behaviours (gender), and it’s important that these differences be examined and understood in order to develop effective injury prevention approaches.The sex/gender differences between men and women go beyond their different physical strengths to include differences in the types of muscle fibre found in men and women. As well, women report pain, discomfort, and other symptoms of musculoskeletal disorders in the neck and upper limbs about twice as often as men, whereas men are more likely to experience low-back injuries. “Sex and gender have their own operational definitions, but there is significant interaction between them, with aspects of biology influencing psychosocial roles and attitudes and vice versa,” said Dr. Côté.

Consultant Relations Now Priority

The U.S. asset management industry, for the first time, is making the consultant relations function a priority in the marketing and sales of institutional products and strategies, says research from Cerulli Associates. This underscores the continuing gatekeeper role of investment consultants in the institutional distribution process. The majority of asset managers indicate the importance of having a consultant relations function has increased significantly over the past five years, says ‘U.S. Investment Consultants 2016: Collaborating with Consultants to Improve Investor Outcomes.’ "Five years ago, less than half of asset managers viewed consultant relations teams as very important and that number climbed to nearly 80 per cent this year," says Chris Mason, research analyst. "And that view of consultant relations is expected to solidify over time with 90 per cent expected to take that view within the next three years."

Maxwell Joins Matheis

Kimberley Maxwell (CEBS) is manager, corporate business development, at Matheis Financial Group. Previously, she worked for Desjardins Financial Security as an account executive and director of service and implementation.

Real Asset Trend Explored

An identifiable trend in a gradual increase in exposure to real assets ‒ real estate, infrastructure, farmland, and timberlands ‒ into portfolios will be examined at ‘WAISC 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 9in Niagara Falls, ON. For information, visit www.waisc.com


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