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March 3, 2022

DISCUSSION OF TARGET BENEFIT PLANS HAS WRONG FOCUS

Too often the discussion of target benefit plans is around contribution adequacy or contribution sufficiency when it should be about what benefits the contributions can support, says Barry Gros, chair of the pension board for the University of British Columbia staff pension plan. “It may seem like semantics to some, but words are important. They set expectations of how people look at things. They are often accompanied by connotations and preconceived notions as to what they mean, not necessarily what was intended,” he says in a forthcoming report from the C.D. Howe Institute. Specifically, an emphasis shift is required because it could spur positive legislative changes. It is worth asking what pension legislation means to protect and from whom or what. In the defined benefits world, where benefits are supposed to be guaranteed, that promise has been broken numerous times when businesses have failed and plans were wound up. For target benefit plans, legislated standards ought to focus more on governance and communication as focusing primarily on financial measures will provide limited progress. “It won’t prevent boards from making bad or inappropriate decisions,” says Gros. As well, target benefit plans need scale and need to be able to attain size quickly. They are sophisticated financial instruments which need sophisticated tools to be managed properly. Scale means plans can afford the tools needed to assess risks properly and make appropriate decisions. While a lot has been learned about target benefit plans in the past decade, that learning needs to continue, says Gros. “It took more than 40 years to really understand DB plans. We can never assume we know everything there is to know about something as complex as managing a target benefit plan.”

March 3, 2022

FUNDS DIVEST RUSSIAN ASSETS

In response to the Russian invasion of the Ukraine, BCI and the Alberta Investment Management Corporation (AIMCo) are divesting their portfolios of Russian securities. “BCI has not only been working to sell the Russian shares in our clients’ portfolios, but also to have Russia removed from all global and emerging market indices,” says Gordon J. Fyfe, its chief executive officer/chief investment officer. “We don’t normally comment publicly on our investment activities, however given the egregious actions of Russia it is important to make an exception.” BCI started selling down its holdings in Russian securities prior to the invasion. However, trading in these securities has now ground to a halt, given international sanctions, trading restrictions, and Russia’s ban on foreigners selling Russian securities. It says it recognizes that holding Russian securities in its portfolio is not aligned with its values as an organization. AIMCo’s decision is both values- and value-driven. It reflects a change in the price of geopolitical risk and sustained impairment to the underlying value of the respective companies. It says it has a fiduciary obligation to its clients to act in their best interests and it believes this decision aligns with its investment objectives, policies, and prudent investment of capital.

March 3, 2022

NOVA SCOTIA SWITCHING FROM BIOLOGICS

The government of Nova Scotia has started switching certain biologic drugs covered under the provincial Pharmacare program to biosimilar versions, says an Eckler ‘Group News.’ The move follows similar changes in other Canadian jurisdictions, including British Columbia, Alberta, Quebec, and New Brunswick. The switch to biosimilars includes drugs such as Humira, Enbrel, Remicade, Lantus, Humalog, NovoRapid, and Rituxan used to treat conditions like diabetes, Crohn’s disease, rheumatoid arthritis, and psoriasis. While biosimilars have been used in the province’s Pharmacare program since 2016, over 5,000 Nova Scotians in the program are currently on biologics that will need to be switched. Pharmacare beneficiaries will have 12 months to work with their healthcare providers to switch to the biosimilar version of their drug. The government expects to save an estimated $13 million annually once the switch is fully implemented. With the trend of more Canadian jurisdictions switching to biosimilars for cost relief, it is anticipated that private plans may also adopt similar initiatives to expand the use of biosimilars to support sustainable costs.

March 3, 2022

CUPE CHALLENGES PAY LEVELS

The Canadian Union of Public Employees (CUPE) Ontario says a report examining executive compensation at the Ontario Municipal Employees Retirement System (OMERS) reinforces the need for an independent review of the pension plan. ‘High Pay, Low Returns: Why are OMERS Executives Paid So Much?’ used publicly available data to compare compensation received by the top five executives at OMERS to that paid to executives at comparable defined benefit pension plans and funds. It found OMERS is paying some of the highest rates of executive compensation, even though the plan is smaller in terms of assets and its investments have been underperforming in comparison. “Investment returns are a critical part of funding the pensions of front-line workers,” says Fred Hahn, president of CUPE Ontario. “Poor investment returns can lead to more pressure to reduce future pension benefits.”

March 3, 2022

ESG ETF INFLOWS DIP

Environmental, social, and governance (ESG) ETFs and ETPs listed globally gathered net inflows of US$9.81 billion during January, which is lower than the US$19.76 billion gathered in January 2021, says ETFGI. Total assets invested in ESG ETFs and ETPs decreased by 3.2 per cent from US$392 billion at the end of December 2021 to US$379 billion.

March 3, 2022

REVIEW SHOWS FUNDING ADEQUATE

A review by LifeWorks of Purpose Investment’s income policy for its Longevity Pension Fund shows that under the policy as drafted, even under the worst-case scenarios modelled, the fund would adjust the distribution levels to ensure it is adequately funded to continue to pay income for life. Purpose announced the income-for-life mutual fund to provide lifetime income to Canadian retirees last June. Before the launch, Purpose worked with LifeWorks to conduct an actuarial review of the fund. The results of that review validated the assumptions that the fund could achieve initial lifetime income rates starting at 6.15 per cent for 65-year-old investors and that distribution levels should increase over time in the majority of cases.

March 3, 2022

CDPQ FUNDING ESENTIRE

eSentire, Inc., an authority in managed detection and response (MDR), will receive funding through an agreement with Georgian and the Caisse de dépot et placement du Québec (CDPQ). Warburg Pincus remains its majority shareholder. Over the next 18 months, it will continue to invest significantly in research and development as it expands its patented Atlas XDR software as a service (SaaS) offering. The firm delivers proactive protection with a service portfolio that includes strategic managed risk services, 24/7 multi-signal MDR, and digital forensics and incident response services.

March 3, 2022

RETURN FROM DISABILITY EXAMINED

CPBI Southern Alberta Region will examine ‘Supporting Employees Returning From Disability.’ Carmen Bellows, a registered psychologist and director, mental health solutions, at Sun Life Financial; and Cheryl Nicholson, director, claims strategy, group benefits, at Industrial Alliance; will discuss effectively supporting employees when they are off work as a result of mental illness. It takes place March 24. Information is at https://www.cpbi-icra.ca/Events/Details/Southern-Alberta/2022/03-24-Mental-Health-and-Sustainable-return-to-work

March 2, 2022

COVID-19 STRESSED HEALTHCARE SYSTEM

The COVID-19 pandemic has put incredible stress on the healthcare system, says Dr. Arif Bhimji, medical consultant to Medavie Blue Cross. Speaking at its ‘Disability Disrupted: How Innovation is Improving Access to Care’ session, he said prior to the pandemic, the healthcare system was operating at 85 to 90 per cent capacity at all times. However, with COVID-19, the focus of care was shifted because of the excessive demands on the system. One result was that all elective procedures were cancelled. There was a reprieve when COVID cases came down and hospitals were able to go back to doing some of those other things. But COVID has come in waves and “we’ve seen opening and closing of all of these different services,” he said. People still need their cataract surgeries, he said, they still need their MRIs and they still need cancer diagnoses, but they can’t get access to the system. This backup is going to take anywhere between seven and 10 years to clear up, he said. The reason is capacity. “We only had 10 per cent capacity for these before so we can really only increase the number of elective surgeries by about 10 per cent,” said Bhimji, “so it’s going to take anywhere from seven to 10 years to catch up unless we build any more capacity. Unless more money is spent to change the system, “we will continue to fall behind with respect to these non-urgent surgeries.” And “there is no easy fix. It takes about 10 to 12 years to become a specialist as a physician. It takes five to seven years to build an addition to a hospital. That’s a long time. “So we are all going to continue to face some very significant challenges in our system,” he said.

March 2, 2022

RUSSIAN SANCTIONS PUT PRESSURE ON PRICES

As fighting continued in Ukraine over the weekend, a long list of countries implemented a long list of economic sanctions against Russia. Questions are pouring in about what this all means for markets, for inflation, and for the global economy, says Kristina Hooper, Invesco’s chief global market strategist. In ‘Assessing the impact of economic sanctions on Russia,’ she expects significant upward pressure on the prices of a number of commodities. The Russia-Ukraine war has already caused a sharp price shock in energy, grains, and metals and sanctions on Russia raise risks of even higher prices and possible interruptions in the supply of many commodities. Energy is at the epicenter of the impact. While it is difficult to assess the precise impact on CPI (consumer price index), a positive correlation between U.S. oil prices and CPI has been observed and this crisis can be expected to add to inflationary pressures. However, she still expects to see inflation peak around the middle of the year and then start to moderate as other inflationary pressures recede. Market performance has varied greatly during previous conflicts and usually also depends on the ongoing economic situation. For example, the Yom Kippur war of 1973 led to a quadrupling of the oil price, high inflation, recession, a squeeze on profits, and a sharp decline in the value of bonds and equities. On the other hand, when the U.S. and its allies invaded Iraq in 2003, equity markets continued higher, partly because the invasion had been long-anticipated and partly because equity markets were just exiting the bursting phase of the dotcom bubble. This time, energy prices are rising, which presents a threat to household budgets and business profits and the disruption to Russia, Ukraine, and Belarus will impact trade flows, which could further dampen the global economy, especially Europe. Some asset classes may be affected. Canadian stocks, for example, could benefit from rising commodity prices, given the economy’s reliance on resource extraction. Indeed, firming raw materials prices has been an important link in a chain of positive events for Canada. “Simply put, what’s good for materials prices is generally good for the Canadian economy,” she says.

March 2, 2022

PIAC WANTS FUNDING RULE HARMONIZATION

The Pension Investment Association of Canada (PIAC) is calling on the federal government for funding rule reform. This was one of a number of recommendations it made during a budget consultation. It is advocating harmonizing with the many jurisdictions that have moved to a going-concern plus model in the interest of promoting the maintenance of defined benefit plans. It also support a proposed regime of solvency reserve accounts including allowing retroactive application, flexibility for legal structure, and disclosure to members. It also notes the proliferation of reporting standards and regulatory proposals, including mandatory disclosure of GHG (greenhouse gas emissions) that help investors consider climate change risk and other ESG (environmental, social, and governance) factors. It is calling for guidance affirming that the consideration of these factors in the investment process is consistent within a fiduciary framework for pension plan management and for principles-based guidance that is not overly prescriptive.

March 2, 2022

PRIOR HISTORY DETERMINES CANDIDATES

The Canadian Coalition for Good Governance (CCGG) will continue to select engagement candidates based on the company’s prior meeting history with it, CCGG member common share ownership in a company, the company’s market capitalization, and input provided by the CCGG board of directors and member organizations. Its ‘Inaugural Annual Engagement Insights & Impact Report’ says it will also continue to select engagement candidates from the TSX Composite Index and, to the extent possible, will try to include a company from every major sector within the index. It also anticipates meeting with companies across a range of market capitalizations and will continue to tailor its engagement meeting discussions to each company’s ESG (environmental, social, and governance) practices and disclosure. However, items that will continue to represent a significant part of its meeting agendas include board oversight of executive compensation; board composition, skills, and succession planning; and board oversight of management composition and succession planning. In 2021, it made over 80 recommendations to either introduce or modify a governance policy or practice or enhance disclosure. The vast majority of its recommendations to introduce or modify a policy or practice focused on the area of executive compensation.

March 2, 2022

RATES HIKES OVERDUE

The U.S. Federal Reserve and the Bank of Canada (BoC) were running behind-the-curve and interest rate hikes were overdue, says a BMO Global Asset Management ‘Market Commentary.’ Shortly after overcoming the Omicron scare, investors began the year facing a Fed that was more eagerly signaling policy tightening. Policy interest rates are widely expected for liftoff in March, with scope for a quick pace to two per cent. However, policy tightening has been faster than the market expected a few months ago. Between economic growth of three per cent and an inflation rate that could run at five per cent for 2022, it says nominal gross domestic product (GDP) could run at a high single-digit pace this year, which would support a strong revenue and earnings outlook. While the highly contagious Omicron is still having a negative impact on mobility and economic activity, most developed economies are seeing declining trends for COVID-19 related hospitalizations which should translate into significantly improved mobility over coming weeks. Although it expects equities to remain sensitive to the Fed’s policy outlook, the economic backdrop will provide a sufficient tailwind to earnings growth. Ultimately, this should drive equity prices higher in 2022, while also maintaining substantial headwinds on fixed income assets as interest rates rise across the yield curve.

March 2, 2022

BOND SITUATION COULD CHANGE SUBSTANTIALLY

Currently, bonds worth around $5 trillion are trading with negative yields, but research from Aeon Investments suggests the situation will change substantially over the next 12 months with the dismantling of pandemic-era monetary policy. It says pension funds and other institutional investors in Europe and the U.S. believe that by October, under 10 per cent of global fixed income will still be in negative-yielding territory with a further 21 per cent believing that between 10 per cent and 15 per cent of bonds will have negative yields. The issue of negative yields is largely a result of the steps taken by central banks to support financial markets during the pandemic, namely, cutting interest rates and the huge asset purchase stimulus program, says Oumar Diallo, chief executive officer for Aeon Investments. However, bonds have fallen recently as central banks have increasingly signaled their determination to unwind the measures taken over the pandemic, particularly with the inflationary pressures looking less transitory than initially predicted.

March 2, 2022

SUSTAINABLE BONDS TO HIT RECORD MARK

Global issuance of green, social, sustainability, and sustainability-linked (GSSS) bonds will hit a record $1.35 trillion in 2022, a 36 per cent increase over the $992 billion issued in 2021, says Moody’s ESG Solutions’ ‘ESG Insights.’ The total $1.35 trillion will be comprised of approximately $775 billion of green bonds, $150 billion of social bonds, $225 billion of sustainability bonds, and $200 billion of sustainability-linked bonds. The projected 36 per cent growth in combined issuance would represent a moderation compared with the 64 per cent growth achieved between 2020 and 2021, when GSSS bond issuance rose to $992 billion from $606 billion. This moderation reflects expectations of gradually declining growth rates over time as the market matures, as well as potential headwinds for overall global debt issuance in a tightening monetary policy environment.

March 2, 2022

ONTARIO TEACHERS’ ACQUIRES PUGET SOUND STAKE

Macquarie Asset Management and the Ontario Teachers’ Pension Plan Board (Ontario Teachers’) have closed an agreement to jointly acquire a 31.6 per cent stake in Puget Holdings from the Canada Pension Plan Investment Board (CPP Investments). Puget’s primary operating subsidiary, Puget Sound Energy, is the oldest and largest electric and natural gas utility in the state of Washington, serving approximately 1.2 million electric customers and 900,000 natural gas customers.

March 2, 2022

MCINERNEY STEPPING DOWN

Barry McInerney will step down as president and CEO of Mackenzie Investments, effective June 30. He has spent more than 35 years in the industry in Canada and the United States, and nearly six years leading Mackenzie. Luke Gould, presently chief financial officer of IGM Financial, will become the new president and CEO effective July 1. He joined IG Wealth Management in 1997 and since that time has progressed in the organization through roles in business and strategic analysis, investor relations, and corporate finance.

March 2, 2022

INVESCO OUTLINES ASSUMPTIONS

Paisley Nardini, a strategist, and Drew Thornton, head of thought leadership, both of Invesco Investment Solutions, will provide ‘A Look Forward: Invesco’s Latest Capital Markets Assumptions.’ The Benefits and Pensions Monitor Meetings & Events session will cover the outlook for capital market assumptions in addition to asset allocation insights and portfolio construction ideas for 2022. It takes place March 29. Information is at https://register.gotowebinar.com/register/8175462010429360141

March 1, 2022

RISE IN DISABILITY CLAIMS ANTICIPATED

With employers across the country working on their post-pandemic planning, many are also anticipating a sharp rise in their disability claims. With