Thursday, October 26, 2017

Canada's National Pension Hub?

At the beginning of the month, the Global Risk Insitute put out a press release, National Pension Hub to develop insights into challenges facing Canada's pension industry:
The Global Risk Institute in Financial Services (GRI) today announced the creation of a National Pension Hub (NPH) that will serve as a Canadian centre for pension knowledge and research. The purpose of the NPH is to provide pension and income security research that, among other things, will lead to innovative solutions to pension design, governance and investment challenges.

To date, more than a dozen organizations have joined the NPH, including major pension plans, accounting firms, consultancies and public corporations, as well as a number of individual opinion leaders in the field of pensions. Additional members are being recruited, including governments and companies associated with pension plans. The NPH will be administered by the GRI.

“The diversity of our membership in the National Pension Hub is one of our key strengths,” said Barbara Zvan, Chair of the NPH, and Chief Risk & Strategy Officer at Ontario Teachers’ Pension Plan. “It will help us produce innovative ideas and research that reflect a wide range of interests and perspectives.”

The pension industry has been grappling with a number of evolving challenges over the past decade including an aging population with a longer life expectancy, finite resources to invest in, more complex regulations, greater market volatility, and the need to generate strong returns in a slower growth economy. The NPH will provide a pipeline of objective research on pensions and income security that will help pension plan providers, investment managers, policy makers, and government administrators address these and other challenges.

In particular, the NPH will be an incubator for outcome-based research that addresses three primary objectives:
  • Provide Innovative solutions to retirement saving challenges;
  • Create sustainable capacity for academic research; and,
  • Serve as an unbiased source for policy consultation.
“We plan to build a deep reservoir of pension knowledge and research that will inform pension industry stakeholders, encourage debate on pension policy, and lead to consensus on critical issues,” said Richard Nesbitt, CEO of GRI. “At GRI, we’ve developed a proven model of how to create value from research by working with academic and industry leaders. We want to apply this model of thought leadership to the pension industry.”

The NPH’s first meeting will take place at the beginning of November, at which time it will set its initial research topics and projects. Most projects will have a two-year time horizon with initisl ports delivered after the first year.

The member organizations of the NPH at its launch date are: AIMCo, bcIMC, CDPQ, CPPIB, CN Rail, Deloitte University, IMCO, KPMG, McKinsey, Mercer, OMERS, OTPP, Public Sector Pension Investment Board (PSP Investments), PwC and the GRI. Individual members who are pension experts include Hugh Mackenzie and Bob Baldwin.

About GRI: The Global Risk Institute is the leading forum for ideas, engagement and building capacity for the management of risks in financial services. We are a non-profit, public and private partnership with 32 government and corporate members from asset management, banking, insurance and pension management. The institute’s goal is to develop fresh perspectives on emerging risks, to engage members, and to enhance risk-management skills. Our activities support academics, corporations, policy makers and regulators. We take a global view of the risks facing the financial services industry from our base in Toronto, Canada.
Yesterday, I had a chance to speak with Barbara Zvan, Ontario Teachers' Chief Risk & Strategy Officer and Chair of the NPH, and Richard Nesbitt, CEO of GRI. I want to begin by thanking them for taking some time to talk to me about this national penson hub.

The conversation was brief and to the point. The GRI was founded in 2011 as a result of an idea conceived by Mark Carney, Governor of the Bank of England and Jim Flaherty, former Canadian Minister of Finance. There were sixteen founding financial institutions, with the Governments of Canada, Ontario, TD Bank Group and Manulife Financial acting as the core architects.

A little over a year ago, the GRI approached Canada's pension industry to see if they can work closely to promote academic research pertaining to pensions.

There are now 14 members taking part in this endeavor, and the GRI coordinates this, collecting membership fees which will be used to fund academic research in Canada on all sorts of pension-related topics.

For example, Barbara Zvan mentioned research topics related to:
  • Longevity risk (see here and here)
  • Asset Allocation
  • Risks in private markets (see here and here)
  • Modelling discount rates to determine future liabilities
  • The use of leverage at pensions (see here and here)
The topics will be divided between assets (investing) and liabilities. They have already approached academic institutions in Ontario, British Columbia and Quebec and are approaching more.

They are currently looking at 20 topics which are being distilled down to 5 topics and they will soon meet to discuss where they want to focus their intitial research effort.

Members are now large Canadian pensions but eventually, they will expand and look for US, European and Asian members down the road. Any pension can join the national pension hub and receive the research and be part of this community but the focus will initially be on Canada.

Barb and Richard told me the research is academic and they are not trying to promote DB over DC plans, but there will be importing links to policies and papers that highlight the main findings for a general audience.

Barb added, "the NPH will complement the work done at University of Toronto's Rotman ICPM and C.D. Howe's Pension series."

I'm all for it, we have major pension issues in Canada that need to be addressed properly through more academic research and more common sense pension policies.

For example, in the wake of the Sears Canada bankruptcy, which is leaving 16,000 retirees unsure about the future of their under-funded pension plan, support is growing for new laws to better protect Canadian workers during corporate collapse:
CARP, a national non-profit advocacy group formerly known as the Canadian Association for Retired Persons, will be on Parliament Hill on Wednesday to meet with dozens of MPs as it lobbies for legislative change.

"What CARP is asking for is that unfunded pension liability be given 'super priority' status so it goes to the front of the line," said Wanda Morris, vice-president of CARP.

Pensioners hold no priority when it comes to dividing up assets during bankruptcy, and Morris said that typically in this country, defined benefit pensions are underfunded.

"There are about 16,000 [retirees] at Sears, but it just pales compared to the 1.3 million that potentially could be at risk. That's 1.3 million corporate pensioners with defined benefit pension plans," said Morris.
Then there are broader risks. This morning, Institutional Investors Release Declaration on Financial Risks Related to Climate Change:
Thirty Canadian and international financial institutions and pension funds representing approximately CAD $1.2 trillion of assets under management today issued a joint Declaration of Institutional Investors on Climate-Related Financial Risks, calling on publicly traded companies in Canada to commit to enhanced disclosure on their exposure to climate change risks, and the measures they are taking to manage them. The Declaration is supported in principle by 13 organizations.

The signatories of the declaration intend to work with publicly traded companies in Canada to help them mitigate their climate change risks. By signing the declaration, they are advocating for other economic and financial institutions to join forces in order to stimulate sustainable world economic growth, while reducing their environmental impact.

"This declaration, which was led by Finance Montréal's Responsible Investment work group, reflects the initiative shown by financial institutions. With more information at their disposal, investors will be able to better assess all the risks faced by their investment portfolios and design investment strategies that are adapted to the realities of climate change," said Louis Lévesque, Chief Executive Officer, Finance Montréal. "This is a positive development for the financial industry in Quebec and Canada, and keeps us aligned with global trends."

"I am proud to see the financial community rallying around this key issue. As institutional investors, we all have a role to play to promote increased transparency and better climate change disclosure practices from the companies we invest in," said André Bourbonnais, President and CEO, PSP Investments, and Responsible Investment Lead, Finance Montréal.

The declaration remains open to new signatories who wish to endorse it. The full text of the declaration, as well as a complete list of signatories, is available here.
Great job. Now, if we can only get President Trump on board.

Once again, I thank Barbara Zvan and Richard Nesbitt for speaking to me. If there is anything to add or change, I will edit this comment during the day.

Below, Barbara Zvan, OTPP's Chief Risk & Strategy Officer discusses the evolution of responsible investing and the role it plays in helping OTPP meet its fiduciary duty to its members.

I also embedded an interesting panel discussion on reforming the Canada Pension Plan and the Quebec Pension Plan featuring Bob Baldwin, Tammy Schirle and Pierre-Carl Michaud.


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