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September 30, 2016

Dynamic Hedging Adds Return

Informed dynamic currency hedging can add return without giving up risk saving. And in this low return forward looking environment every basis point counts, making managing currency more important than ever, says Joe Hoffman, director and global head of currency at Russell Investments Implementation Services, LLC. Sponsors need to look to new potential sources of return even if it means taking more risk, he told the ‘Adding value through currency management’ session at the ‘2016 Russell Investments Seminar.’ Sponsors now need to take three times the risk compared to 1995 to get same return. This is prompting them to invest abroad which means currency risk. He said there are three rules sponsors must follow in this low return environment – don't take risks that you don't get paid for; look for return seeking strategies; and look for better implementation which are both effective and cost efficient. With currency, most investors violate at least one of the rules, he said. Informed dynamic hedging is an effective way to manage currency risk for greater outcomes and can add value over the full market cycle. A smarter way to manage uncompensated currency risk, it uses a hedge ratio systematically defined for each currency; provides higher risk adjusted returns; reduces cash drawdown; and is imperative for better risk adjusted returns in low return environments.

Wellness Needs Emphasis

A lot of the problem with benefits plan and their escalating cost is not enough emphasis is being put on wellness, says Brian Reynolds, a principal at Hansell Consulting Group. Speaking at its ‘Wellness Index 2016 Results’ session, he said for many employers wellness program is healthy eating and mental health promotions or community giving and smoking cessation programs. This bears out their survey findings as not everyone believes wellness is the same thing. It is not just a list of things a company can do because if it were, every company would be doing the same things, he said. The varied definition of wellness means it is also difficult to measure results, an important component of any wellness program. Balance is key to having a good program. Every organization needs to encourage, communicate, provide strategic direction and expertise and measure the outcomes to succeed in creating wellness in the workplace, he said.

Alternatives Create Illiquidity

Holistic liquidity management requires positions that provide some liquidity hedge in event of market correction, protective hedges when they are cheap, and removing unintended exposures such as currency, says Greg Nordquist, director of overlay strategies at Russell Investments Implementation Services, LLC. Speaking on ‘Managing liquidity in an illiquid world’ at the ‘2016 Russell Investments Seminar,’ he said today's capital market assumptions reflect the reality of global interest rate policies. The financial crisis cut returns from 7.5 to 5.5, but then rates dropped and dropped forcing down returns. However, pension plans need more than five per cent to meet their obligations, they need six or seven per cent to fill the return gap. To do so, they turned to alternatives which provided returns and diversification, but sacrificed liquidity. There are other practical challenges from increasing the use of alternatives in a portfolio. Larger allocations to alternatives mean there is a smaller liquid asset base to meet liquidity needs. As well, in a drawdown, funding needs and benefit payments stay constant while the asset base drops. The cap call/distribution ratio increases and there can be unanticipated risks from currency and potential concentration. A holistic approach to management can help position the fund to weather these risks.

DB Health Declines Slightly

The health of Canadian defined benefit pension plans slightly declined in the third quarter of 2016, says a quarterly pension plan solvency survey from Aon Hewitt. Amid relatively robust equity markets and continued decline in bond yields (a consequence of the UK vote to leave the European Union), overall pension solvency declined by 0.8 percentage points in the three months ending September 29. However, solvency remains relatively stable and a growing proportion of surveyed pension plans ended the quarter fully funded. Median solvency on September 29 was 84.6 per cent, down from 85.4 per cent on June 30. However, more than 12 per cent of plans were fully funded at quarter's end. Whether well-funded or not, all plans should consider ways to address risk, says Aon Hewitt, as the end of 2016 seems likely to be marked by heightened volatility, uncertainty in fixed income and equity markets, and potential decisions that will impact funding in the coming years.

Career Becoming Part Of Wellness

The definition of wellness is broadening to include career development, says Bram Lowsky, group executive vice-president of the Americas for Right Management. He told the ‘Career Development in Supporting Workplace Wellness’ session at the Hansell Consulting Group’s ‘Wellness Index 2016 Results’ that the number one issue in the workplace is around careers. A majority of people, not just millennials, say they define, at least in part, themselves through their career. As a part of wellness today, organizations need to support employees in career development because, like wellness, it is a driver of a company's success. In fact, he said employers that provide career development see a six-fold increase in employee engagement as well as improved attraction and retention and productivity. Building a career development culture requires executive sponsorship, communication, manager coaching, and employee involvement and accountability, said Lowsky.

Sluggish Growth Creates Risk Now

Up until now, the risks to emerging markets were coming from emerging markets. Now they are coming from the global economy and sluggish global growth is the biggest concern, says Denise Simon, managing director of Lazard Asset Management. On the ‘Is it time for pension funds to rethink their fixed income allocations?’ panel with Michelle Peshko, senior advisor, pension investments, at Glencore Corporation; and Asif Haque, director of investments for the CAAT Pension Plan; at the ‘2016 Russell Investment Seminar,’ she said plan sponsors are looking outside Canada for opportunities in fixed income such as emerging markets. While the growth in emerging markets bottomed out in the first quarter of this year as developed markets picked up, she sees their growth turning around. Both Peshko and Haque said their plans have made minor changes to find fixed income returns. Both have reduced their duration target which allows managers to protect more on the downside. And both are getting into more private debt such as infrastructure and real estate. Peshko said it is about getting additional returns while Haque said they are trying to be judicious about taking more risk with fixed income.

Psychological Health Must Be Embedded

Psychological health and safety needs to be embedded in the way companies do business. It is not just another initiative to be slapped on top, says Mary Ann Baynton, executive director of Mindful Employer Canada. In the ‘National Standard for Workplace Psychological Health & Safety’ session at Hansell Consulting Group’s ‘Wellness Index 2016 Results’ event, she said 20 per cent of employees will have a stress related illness every year and 51 per cent of workers say they are less productive due to stress. Stress can exacerbate mental illness in some people or physical ailments in others. Since people spend 60 per cent of their time at work, employers need to get people energized and feeling good about going to work. To do so, the psychological safe workplace connects the value of each employee’s work to organizational goals. And there are ways employers can move in this direction without worrying about implementing the national standards. They need to look at the strategic objectives of organization and find a way to support these through psychological health and safety. As well, leaders need to set the direction because then people will react and try to figure out what to do. Finally, they need to ask how each decision affects the psychological health and safety of the employee. You don't need to be an expert to answer that, she said, and these answers can be used to answer what energizes employees and what stresses them out.

Mackenzie Joins ETF Association

Mackenzie Investments has joined the Canadian ETF Association. The Canadian ETF industry remains on a record pace with $107.8 in assets under management versus $ 83.98 in August 2015, a year over year growth of 28 per cent.

Manulife Adds Third LOFT

Manulife has opened a Lab of Forward Thinking (LOFT) in Singapore, its third LOFT site. The LOFT is a global exploration and incubation capability to build Manulife's competitive advantages within the financial services. It provides a platform for employees to collaborate and devise new technological solutions for the company's wealth, asset management, and insurance customers.

Tanguay Leads Triasima

Mathieu Tanguay (CFA) is president and senior partner at Triasima Portfolio Management. Previously, he was a partner and investment business leader for central and then eastern Canada for Mercer Investments, a firm he joined in August of 2010 as a senior investment consultant. Prior to that, he was vice-president, capital markets, at TD Securities and taught finance at HEC Montreal.

Morrissey Now Chief Actuary

Kevin Morrissey is senior vice president and chief actuary for Sun Life Financial Inc. He will oversee the firm's enterprise-wide actuarial practices and provide leadership, direction, and vision for the company's actuaries. He joined the company in 1988 and gained experience across valuation, pricing, and finance roles in Canada. He was appointed vice president, asset liability management in 2005, initially for Canada and then for North America. He was then promoted to senior vice president in 2013 and served as the company's first global leader of asset liability management.

Session Looks At Cannibas At Work

‘Cannibas at Work’ will be examined at a CPBI Alberta North session. The purpose of this session is to provide a strong foundation to insurers, benefits professionals, and HR practitioners on the current state of medical marijuana in Canada. Participants will learn about the history of cannabis in Canada, patient demographics, what coverage exists, and the challenges for insurers. Alison McMahon, founder of Cannabis at Work, is the featured speaker. It takes place October 19 in Edmonton, AB. For information, visitCannibas At Work

September 29, 2016

Initiative Combats Short-term Myopia

The Canada Pension Plan (CPPIB) and McKinsey & Company have come together with BlackRock, Tata Sons, and the Dow Chemical Company to launch an independent not-for-profit organization, FCLT Global. In 2013, CPPIB co-founded the ‘Focusing Capital on the Long Term (FCLT)’ initiative with McKinsey to combat short-term myopia in markets. Along with these founding organizations, more than 15 asset owners, asset managers, and corporations from nine different countries have now committed to become members of FCLT Global. In conjunction with this, FCLT Global released a white paper which shows the continued short-term pressure that executives experience. For example, 87 per cent of executives report feeling the most pressure to demonstrate financial results within two years, up from 79 per cent from a similar survey two years ago).

Opportunity Exists To Deprescribe

With seniors a growing demographic – by 2036, one in four Canadians will be older than 65 9 – it’s clear there’s an opportunity to provide deprescribing, says Green Shield Canada’s ‘Follow the Script.’ However, while ultimately the pharmacist and physician need to work together and collaborate as each has their own area of knowledge and expertise, there is a need for more education and effective processes to make it happen. It says there is potential for positive impacts for plan sponsors and their drug plans and for the healthcare system overall. Often a medication is appropriate at the time it was prescribed, but, as a patient’s condition changes, it may no longer be the right dosage, the right kind of drug, or required at all. In the case of older people, some drugs aren’t suitable or are unsafe – the benefits of the drug may no longer outweigh the risks. As well, when a person is taking many different drugs, there’s increased possibility of non-adherence, drug interactions, adverse reactions, and visits to the emergency department. There are four drug classes that are common candidates for deprescribing ‒ PPIs (proton pump inhibitors to treat stomach acid problems, such as GERD); Benzodiazepine receptor agonists; anti-psychotics for sleep; and anti-hyperglycemics (diabetes treatments). Deprescribing is the process of tapering, stopping, discontinuing, or withdrawing drugs, with the goal of managing the patient’s multiple medications and ultimately improving health outcomes.

Safety Of Assets A Concern

Concern about the safety of assets held by custody banks is prevalent among financial institutions, with some saying they find it difficult to assess risks despite extensive scrutiny, says research by Six Securities Services. Just over a quarter of 50 global and domestic systemically important banks and clearing houses across Europe said that despite “increasingly granular” due diligence questionnaires, they did not feel they were able to accurately assess custody bank risk profiles, including creditworthiness, operational procedures, risk management models, and security policies. The research found the link between custody business and investment business in agent banks providing custody services formed a particular area of concern for 64 per cent of the financial institutions who feel an inability to separate these two business activities introduces a potentially high level of risk with regard to asset safety.

Teachers’ Reduce Computer-driven Hedge Funds

The Ontario Teachers' Pension Plan has reportedly halved the number of computer-driven hedge funds in its investment portfolio and put more money into the funds it is sticking with, says a Reuters report. It has pulled cash from 10 of the 20 hedge funds in its portfolio which use computer algorithms to choose when to buy and sell. Those funds to receive more investment offer a more specialist set of skills.

Managers Reducing Fees

Lower recent performance, high-profile redemptions, and increased concern from investors on the issue of fees have influenced many hedge fund managers to bring their management and performance charges below the ‘2 & 20’ industry standard, says research from Preqin. Just 35 per cent of hedge funds currently charge both a two per cent management fee and a 20 per cent performance fee. In 2016, the mean management fee is 1.57 per cent, while the mean performance fee is 19.29 per cent. Furthermore, these fees are lower still among the most recent funds. Funds launched in 2016 have, on average, a 1.53 per cent management fee and a 19.13 per cent performance fee. In Preqin’s most recent survey of hedge fund investors, almost half (49 per cent) cited fees as a key issue facing the industry over the next 12 months.

Employees Fuel Great Workplaces

Great workplaces are fueled by employees with high well-being who feel their employers value them as people, says the ‘2016 Well-Being & Engagement Report’ from the Limeade Institute and Quantum Workplace. The survey responses from more than 1,200 U.S. employees across 45 markets reveals that 88 per cent of employees with high well-being are highly engaged in their work. Highly engaged employees also intend to stay longer, are more likely to enjoy their work, and are more likely to recommend their organization as a great place to work. "The connection between well-being and engagement may seem intuitive, but there has been little research that statistically relates the two," says Dr. Laura Hamill, Limeade chief people officer and managing director of the Limeade Institute. "These findings confirm the relationship and can serve as the foundation of taking companies from good to great."

OMERS Sells Dental Centers

OMERS Private Equity, the private equity arm of OMERS, has sold Great Expressions Dental Centers together with its affiliates to an affiliate of Roark Capital Group. Great Expressions is a dental support organization with 269 affiliated practice locations across 10 U.S. states. It provides comprehensive affordable dental services through a network with over 900 dentists and hygienists. Since acquiring Great Expressions in 2011, OMERS Private Equity has worked with the company on several initiatives, including the improvement of dentist retention, the expansion of business development efforts, career path development, and investments in the platform in areas such as training, marketing, and human resources.

Research Award Seeks Submissions

The‘CFA Society Toronto & Hillsdale Canadian Investment Research Award’ is seeking submissions. Sponsored by the CFA Society Toronto and Hillsdale Investment Management, it offer academics and practitioners the opportunity to submit Canadian capital market research. It carries a $10,000 prize and professional recognition within the investment community. The deadline for submission is November 30. For information, visit www.cfatoronto.ca

Integrated Finances Biomont Energy

Integrated Asset Management Corp. and its private corporate debt division, IAM Private Debt Group, are financing the construction and long-term operation of Biomont Energy Limited Partnership’s 4.8 MW cogeneration facility that will utilize landfill and natural gas to generate electricity and heat.The electricity will be sold to Hydro-Québec under a 25-year power purchase agreement and thermal energy to local users. It is located in the Montreal, QC. The project’s limited partners are Eolectric Inc, Valeco Énergie Québec Inc, and Fondaction CSN.

Caisse Invests In Sedgwick

The Caisse de dépôt et placement du Québec (CDPQ) has invested in Sedgwick, a third-party claims administration in the United States. After the transaction, CDPQ will hold a significant minority interest in the capital of Sedgwick, in partnership with the existing shareholders, including KKR, the majority shareholder, Stone Point, and members of Sedgwick's management.

Desjardins Selects Eagle

Eagle Investment Systems LLC has been selected by Desjardins Group to deliver a new investment fund accounting platform hosted on its secure private cloud. Eagle ACCESS will replace Desjardins’ legacy mutual fund accounting platform with a modern system to support several new initiatives and facilitate both top- and bottom-line growth. “The increasing number of asset types and assets under management was making it more challenging and time-consuming to produce net asset values,” says Pauline Toulouse, vice-president and chief operating officer, investment product operations division at Desjardins.

Alternative Best Practices Examined

Institutional investment management practitioners and other investment professionals will learn about best practices and leading edge thinking on alternative investments in both liquid and illiquid markets at the ‘CFA Institutional Investment Forum.’ It takes place November 9 in Toronto, ON. For information, visit www.cfatoronto.ca

September 28, 2016

Fourth Pillar Improves Retirement Readiness

Fourth-pillar assets significantly improve the outlook for Canadian households’ retirement readiness, says a report from the C.D. Howe Institute. ‘The Bigger Picture: How the Fourth Pillar Impacts Retirement Preparedness’ says Canadian households can count on four pillars of wealth in retirement ‒ government payments through the Old Age Security (OAS)/Guaranteed Income Supplement (GIS); benefits from the Quebec/Canada Pension Plan (Q/CPP); wealth explicitly set aside for the purpose of supporting retirement, such as workplace pension plans; and wealth from sources such as real estate, financial instruments, businesses, inheritances, insurance, and tax-free savings accounts. “Contrary to popular claims of widespread gaps in Canadians’ retirement preparedness, a closer analysis of the impact of fourth-pillar assets show fewer Canadians at risk than previously thought,” says Alexandre Laurin, a co-author of the report. After factoring in wealth already accumulated from all fourth-pillar assets, the report found that 40 per cent of the group generally thought to be most at risk of inadequate retirement savings ‒ employed 35-to-64-year-old Canadian households that primarily rely on voluntary savings to sustain their living standards ‒ has potentially already accumulated sufficient wealth to sustain themselves in retirement. In total, this leaves about one-in-five employed 35-to-64-year-old households, most of them in the upper-income quintiles, likely needing to accumulate more retirement capital on a voluntary basis outside of workplace pension arrangements.

New Zealand Model Offers Less Choice

Adopting a system to control drug costs in Canada that is similar to New Zealand’s would likely lead to less choice of new effective and safe drugs and the potential for poorer health outcomes, says a report from the Canadian Health Policy Institute (CHPI). In ‘How might the choice of prescription drugs in provincial public insurance plans be impacted if a cost-control system like New Zealand’s was adopted in Canada?’, Dr. Nigel SB Rawson, president of Eastlake Research Group and an affiliated scholar with CHPI, says in New Zealand, several drug classes have fewer drugs approved for marketing and fewer drugs insured through the public payer. The adoption of a New Zealand-style scheme might offer payers the opportunity to restrain drug expenditure, but would likely fail to satisfy patients and physicians and could result in higher costs in other healthcare sectors. For example, denying patients the benefits of newer, more effective drugs for cardiovascular diseases, diabetes, and cancer could lead to an increased risk of hospitalization. Rawson says the development of any national pharmacare system must involve all stakeholders and take a holistic approach to ensure that patients and physicians have adequate and equitable access to a choice of medications to treat the right disease at the right time. At the same time, it must not bankrupt payers or stifle pharmaceutical innovation.

Spiralling Costs Could Close DB

Spiralling costs are likely to lead to defined benefit funds in the UK closing to all employees if not addressed, says JLT Employee Benefits. Corporate pensions for the largest companies in the UK face a doubling of costs in the next three years, it says. Current annual costs for FTSE 100 company pension funds are roughly £7 billion and this could reach £14 billion by 2019. Costs to employers have already doubled during the last three-year actuarial valuation cycle, from 26 per cent of total employment costs to 52 per cent.

Managers Win Business Through OCIO

A vast majority (77 per cent) of U.S. asset managers have won business through an outsourced chief investment officer (OCIO) provider, up from 33 per cent in 2014, says a Cerulli Associates survey. Many OCIO providers are seeing an increase in the number of mandates they receive via OCIO search consultants. Its survey of OCIO providers shows that 80.4 per cent have had some form of contact with an OCIO search consultant. It found most asset management firms split outsourced CIO distribution responsibilities among institutional sales professionals and consultant relations professionals (46 per cent). However, more than one-fifth (21 per cent) of asset managers have a dedicated OCIO sales professional. (October 11 in Toronto, ON, Benefits and Pensions Monitor Meetings & Events is presenting ‘The Outsourced CIO.’ For information, visit OCIO)

Online Tools Help With Saving

Investors who frequently use online tools and consult with a financial adviser have higher savings than those who do not, says a survey by the PNC Financial Services Group, Inc. The most digitally connected investors have the highest average household income and highest total investable assets. They spend an average of three hours and 42 minutes a week reviewing their finances or looking up financial information on a computer or mobile device. Of the 45 per cent of survey participants who say they are ‘very connected’ to their finances, 50 per cent look at financial headlines every day and 50 per cent use a mobile application to access their accounts. More than one-third of these investors would like even more information. It also found that 60 per cent of the ‘very connected’ investors rely on an adviser. The most commonly used app is for mobile banking, which 58 per cent of respondents have used in the past year. However, only 37 per cent have used mobile apps to access their investment accounts, which indicates, PNC says, that firms could do more to promote these resources.

ERI Signs PRI

ERI Scientific Beta has signed the United Nations-supported Principles for Responsible Investment (PRI). Forerunners in the domain of socially responsible investment (SRI) and low carbon smart beta investing, the EDHEC-Risk Institute and ERI Scientific Beta have been providing a custom SRI smart beta index to the additional pension scheme for French civil servants, ERAFP, since June 2011. In early 2015, ERI Scientific Beta launched a series of low carbon smart beta indices that enable institutional investors to significantly reduce the carbon intensity of their equity investments, while at the same time outperforming traditional market indices. The exclusion from the index of the largest carbon emitters, the worst firms in terms of carbon intensity in each sector of activity, and the largest holders of fossil assets, guarantees that these indices have a strong positive impact on the environment by weighing on the value of the stocks of the excluded firms, thereby obliging them to change their strategy or their production process in order to be removed from the exclusion list.

CPP Sustainable For 75 Years

The Canada Pension Plan is on a sustainable financial footing at its current contribution rate of 9.9 per cent for at least the next 75 years, says the ‘27th Actuarial Report on the Canada Pension Plan.’ And, says Bill Morneau, Canada’s finance minister, “the CPP enhancement will build on this strong record of financial management.” The chief actuary will conduct an actuarial assessment of the enhancement once legislation implementing the enhancement is introduced in parliament. “The CPP enhancement will give Canadians a more generous public pension system, which will support the conditions for long-term economic growth in Canada,” says Morneau.

Union Claims City Trying To Change Plan

Transit workers in Saskatoon, SK, overwhelmingly have turned down an opportunity to vote on the city’s final offer in part over the pension plan. The Amalgamated Transit Union Local 615, which represents the transit workers, says the city is proposing a move from a defined benefit pension to a target benefit plan. While the plan is registered as a defined benefit plan, the language in the offer converts it to a defined benefit plan with target benefit, says the union. The city, however, contends that this is not the case. Catherine Gryba, general manager of corporate performance at the city, says “It is not a targeted benefit plan. The city is not able to change the current defined benefit plan into a targeted benefit plan under the legislation.” Two years ago, an independent review of the financial health and sustainability of the plan found it had a large deficit. As a result, eight of the city’s unions and associations worked with the city to take action to address the deficit. Changes included having employees pay a higher percentage of their earnings in the future and capping the employer’s contribution at nine per cent. While the transit union says it could agree to the benefit changes and contribution rate increases, it is not willing to accept the capping of rates.

56 Million Will Not Get Pension

Eighty-one per cent of today’s retirees in the U.S. receive some income from a pension plan and for 42 per cent of these people, their pension provides half or more of their retirement income, says a study by the Insured Retirement Institute (IRI). However, for those not yet retired, only 24 per cent have a defined benefit plan. It estimates that as many as 56 million Baby Boomers will not receive retirement income from a pension and that future retirees will need upwards of $400,000 to make up for this income shortfall.

Amundi Uses Single Platform

Amundi is launching a single platform for real and alternative assets. It will combine real estate, infrastructure, private debt, private equity, and alternative multi-management into a platform that offers investors the ability to invest directly in real assets or via co-investment and multi-management funds. Citing a PWC report, it says 38 per cent of institutional investors envisage reallocating part of their portfolio to private debt, 44 per cent to infrastructure, and 51 per cent to private equity.

Income Security Examined

‘Improving Retirement Income Security from CPP to PRPPs’ will be the topic of a ‘CPBI Atlantic Spotlight Event.’ Randy Delorey, Nova Scotia’s minister of finance and treasury board, will provide his views on the upcoming changes as well as his insights into a national approach to the challenges of retirement income security. It takes place October 11 in Halifax, NS. For information, visit Income Security

September 27, 2016

HRPA Moving To Competency Framework

The Human Resources Professionals Association (HRPA) has made a critical stride toward the creation of a global competency framework for the human resources profession. Its proposal for a comprehensive core competency framework has been approved by a technical committee (TC260) of the International Standards Organisation (ISO) and a working group to develop that harmonized framework has been created. Currently, there are only a handful of countries that have comprehensive and detailed core competency frameworks in HR. These include Australia, the U.S., and the UK. Having a global competency framework will help enhance the human resources profession worldwide; create a common basis for education, training, and talent selection; and facilitate the mutual recognition of designations between countries, says Bill Greenhalgh, HRPA’s CEO and chair of the working group.

Coalition Alarmed Over Caisse Project

A broad coalition of public transit experts, environmental groups, and trade unions have sounded an alarm bell with respect to the light-rail project ‒ Réseau électrique métropolitain (REM) ‒ put forth by the Caisse de dépôt et placement du Québec (CDPQ). Dubbed ‘Trainsparence,’ the coalition calls for a parliamentary committee to be held so that the project as a whole can be fully evaluated. A petition on this matter has been tabled in the National Assembly. "This project was conceived by the private sector for the private sector and is not in the public interest,” says Denis Bolduc, spokesperson for Trainsparence and president of SCFP-CUPE Quebec. “It does nothing to decrease greenhouse gases; it infringes on protected green spaces; and offers no protection or guarantees to users with respect to fares."

Substance Policies Need Evaluation

Substance misuse and abuse has been linked to absenteeism, lost productivity, on-the-job accidents and injuries, and workplace violence and harassment, However, while the majority of Canadian employers have a formal drug and alcohol policy in place, few evaluate their effectiveness, says a Conference Board of Canada report. "Problematic substance use in the workplace is an emerging concern for Canadian employers in all industries, which is why many have implemented formal policies," says Mary Lou McDonald, director of workplace health, wellness, and safety research at the Conference Board. "However, to improve the health and well-being of their employees, Canadian organizations should measure the effectiveness of these policies. This would allow proper assessments of their actions in dealing with substance misuse issues." Among the employers surveyed, 72 per cent reported having a formal drug and alcohol policy. However, only 32 per cent of employers reported that they evaluated the effectiveness of their drug and alcohol support programs and policies. Measuring the effectiveness of substance misuse policies and programs has a positive impact on how employers perceived the supports offered to deal with drug and alcohol-related issues. As well, regular assessments of drug policies allow employers to keep up with best practices and changes in legislation, says ‘Problematic Substance Use and the Canadian Workplace.’

Auto Escalation Adoption Too Low

The adoption rate of auto escalation by 401(k) plans is too low at 32 per cent, says a report from Northern Trust Asset Management. The report noted that 46 per cent of plans place a cap of eight per cent or less of a participant's annual pay for the combined use of auto enrollment and auto escalation. “Experts suggest an effective ceiling would be 12 per cent to 15 per cent, depending on workforce characteristics and plan design,” says the report. It recommended that the auto escalation adoption rate at least match the 52 per cent adoption rate of auto enrollment by 401(k) plans. Despite the low adoption rate, 66 per cent of participants whose plans lack an auto escalation feature would likely accept the automatic annual increase, it says. Higher goals could be better achieved if DC plans raised the initial auto enrollment deferral rate beyond the traditional three per cent of annual pay.

Ethical Products Not Satisfying

The ethical investment product range is not satisfying the greater client demand in this area, say independent financial advisers (IFAs) in the UK. A Heartwood Investment Management survey found about 60 per cent of the IFAs surveyed were dissatisfied with the current range of ethical investments they can offer clients. The main area of disappointment was global diversification. As well, just over 80 per cent of the IFAs wanted ethical multi-asset portfolios rather than single strategies. Moreover, a third have struggled to manage client risk when buying single-strategy ethical funds in the last six months. The findings also suggested 62 per cent of IFAs preferred an integrated screening process when building ethical portfolios, which applies both positive and negative screening criteria, meaning ethically questionable stocks (such as tobacco, arms manufacturers, and alcohol) were excluded and actively ethical investment opportunities were targeted.

Private Markets Accessing Dynamic Sector

Even with recent economic woes, Latin America retains a burgeoning middle class with more money to spend on fast-growing sectors such as healthcare, education, technology, and retail. Yet, these industries remain largely inaccessible via public markets and the best way for institutional investors to access them ‒ and the opportunities they represent ‒ is through private equity and venture capital managers, says Cambridge Associates’ ‘The Private Path to Latin America's Most Dynamic Sectors.’ "The Latin American middle class is on course to comprise 40 per cent of the region's population by 2030 and this demographic is increasingly demanding higher-quality products and services," says Iñigo Garcia, investment director at Cambridge Associates and co-author of the report. "Sectors such as healthcare, education, and information technology are benefiting directly from these trends and are in fact growing at a rate well above the overall Latin American economy." The report's insights show Latin America has a deep bench of privately held lower-middle-market companies, which private equity managers typically buy or provide capital to in order to create returns for their investors. One sector that has attracted private capital, but still has room for growth, is healthcare. Almost $1 billion of private equity investments went to Latin American healthcare companies in 2015. In Brazil alone, 28 per cent of all private equity capital invested last year was in the healthcare space. The key factors that may affect a Latin American private investment program are exchange rates and currency fluctuation.

Godin Joins Mercer

Louis-Charles Godin is a health and benefits consultant in Mercer Canada’s Quebec City, QC office. His main role will be to focus on business development. He will also be in charge of the region’s group insurance clients. He began his career as a sales representative for a major Quebec City insurance company. With the insurance expertise and market knowledge he acquired, he went on to join the sales force of a large Canadian insurer for the launch and subsequent development of Solution, a group insurance product.

Ault, Milnthorp Now Partners

Tom Ault is a partner in the retirement practice at Aon Hewitt. Based in the Vancouver, BC, office, he is deeply involved in the ‘Aon Longevity Model’ in Canada. He joined the firm in September of 1999 as an actuarial consultant. Troy Milnthorp is a partner in the Saskatoon, SK, office, providing pension and actuarial consulting services. Over the past years, he has been actively working on sustainability pension solutions.

Shareholder Activism Examined

The Canadian Foundation for Advancement of Investor Rights (FAIR Canada), the Program on Ethics in Law and Business at the University of Toronto Faculty of Law, and the Canadian Coalition for Good Governance (CCGG) will discuss shareholder rights and the relevance of shareholder rights in today's capital markets. The conference will include a comparative view of Canada and the United States, with a focus on recent developments in shareholder activism and the rights that permit such activism to occur. Speakers include Mary Condon,former commissioner of the Ontario Securities Commission and professor of law at Osgoode Hall Law School; Carol Hansell, a partner at Hansell LLP; and Jon Lukonmik, executive director of the Investor Responsibility Research Center and managing partner of Sinclair Capital LLC. It takes place October 28 in Toronto, ON. For information, visit Shareholder Rights

September 26, 2016

MOU Reached On U.S. Steel

The government of Ontario has signed a Memorandum of Understanding (MOU) with Bedrock Industries Group, a New York investment firm, to facilitate the restructuring of U.S. Steel Canada Inc. (USSC), which remains in court-supervised creditor protection proceedings under the Companies' Creditors Arrangement Act (CCAA). The MOU is a step toward the completion of a restructuring intended to protect pensions and post-employment benefits for active and retired USSC employees, jobs, and the ongoing operations at USSC's Hamilton and Lake Erie facilities. The province has also agreed to support the development of industrial lands on behalf of pensioners in an effort to promote the economic development of the Hamilton region while ensuring that the environment continues to be protected. Bedrock's principals have a long track record of owning and operating businesses in the metals, mining, manufacturing, and distribution sectors worldwide including in Canada.

OTPP Meets Code

The Ontario Teachers’ Pension Plan (OTPP) has set out how it meets the standards of the UK Stewardship Code. Developed to improve the quality of engagement by institutional investors, the intent of the code is to establish good practices in engagement between institutional investors and their investee companies. Compliance with the code is on a comply-or-explain basis. UK-based institutional investors are required to provide an annual report as to what steps they have taken to comply or explain why they are unable to do so. Institutional investors not domiciled in the UK are not required to report against the code, although they may do so voluntarily. The principles institutional investors should meet include public disclosure of their policy on how they will discharge their stewardship responsibilities; having a robust policy on managing conflicts of interest in relation to stewardship; monitoring investee companies; and establishing clear guidelines on when and how they will escalate their stewardship activities.

Rule Inhibits Pension Plans

The Association of Canadian Pension Management says the federal government’s ‘30-per-cent rule’ needlessly inhibits pension plan administrators in the search for appropriate investment returns and creates unnecessary costs and lost opportunities. The rule, it says, was established on the presumption that pension funds should only be passive investors and that they needed to be insulated from potential losses should a business fail. “However, that logic now appears tenuous and its results for Canadian pension fund investors suboptimal,” it says in its response to a consultation. The assumption that pension administrators would take an active, day-to-day interest in the running of an acquired business as opposed to appointing qualified directors to run it on their behalf is dubious. It says a 2008 study co-authored by researchers from Brunel University and the Organisation for Economic Co-operation and Development argued that the data supports removal of quantitative restrictions such as the 30-per-cent rule and replacement solely with the prudent investment standard. As a result of the low interest rate environment, pension administrators need the ability to seek active investments in order to find higher return opportunities than may be available to passive investors, within the particular plan’s risk tolerances. Those opportunities are often available in private and alternative asset classes, such as private equity, infrastructure, and the like, where an active approach and control in excess of that permitted by the [30-per-cent rule] might be most appropriate in managing the risk that such categories of investments carry …” it says.

Outlooks Diverge Over Performance

Divergent performance trends have produced different outlooks between infrastructure and natural resources funds, says a Preqin survey. While 89 per cent of infrastructure investors said performance either met or exceeded their expectations, just 35 per cent of investors in natural resources said likewise, including just two per cent that stated their investments had performed better than expected. Performance concerns mean under a third (29 per cent) of natural resources investors hold a positive perception of the industry, compared with 51 per cent of investors in infrastructure. As a result, investors in the two asset classes are taking differing approaches to their investments over the next 12 months. While a majority (51 per cent) of infrastructure investors plan to commit more capital to the asset class in the next year compared to the previous 12 months, less than half that proportion (25 per cent) of natural resources investors intend the same, with a fifth of investors planning to decrease their allocation over the same period.

Dick Now Co-ordinator

Brendan Dick is enhanced disability management co-ordinator at the Hospital Employees' Union in British Columbia. He has been with the union since January 1988, most recently as director ‒ pensions and benefits.

Zimmerman Work Celebrated

The ‘2016 Alf Nachemson Memorial Lecture’ will celebrate the work of Wolfgang Zimmermann, the founder and executive director of the National Institute of Disability Management and Research (NIDMAR). Under his direction, NIDMAR has professionalized disability management through the creation of Canadian and international codes of practice, a consensus-based disability management audit tool, and certification standards for disability management professionals and return-to-work co-ordinators. The Institute for Work & Health (IWH) event takes place October 14 in Toronto, ON. For information, visit Nachemson Lecture

Latest Concepts Examined

The inaugural EDHEC-Risk Smart Beta Day Europe, organized by the EDHEC-Risk Institute in partnership with ERI Scientific Beta, will showcase the latest conceptual advances and research results in smart beta investing. Sessions will address themes such as beyond low volatility and minimum volatility strategies; what can be learned from academic research about smart beta investing; and whether smart beta delivers what it promises. It takes place October 13 in Amsterdam, the Netherlands. For information, visit Smart Beta


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