Watch Groups

OMERS Contributes Far More Than $13.7 Billion Annually to Ontario’s GDP

Pension Pulse -

OMERS issued a press release earlier stating it contributes $13.7 billion annually to Ontario’s GDP, supporting 143,000 jobs:

OMERS, the defined benefit pension plan for municipal sector employees in Ontario, contributes $13.7 billion annually to the province’s GDP, according to new research conducted by the Canadian Centre for Economic Analysis (CANCEA).

OMERS released the study on Pension Awareness Day (February 15) to highlight the importance of pensions to members, to all Ontarians, and to our province’s economy.

“By delivering on our commitment to our members, OMERS continues to create economic value in Ontario,” said Jonathan Simmons, OMERS Chief Financial and Strategy Officer. “OMERS retirees spending their pension payments, activity from our investments, and the impact of our operations support more than 143,000 jobs provincewide – up 19% from three years ago.”

Based on a review of 2023 data, OMERS overall contribution to Ontario’s economy grew by 14% in the past three years. One in 11 households in Ontario are impacted by OMERS in some way, whether directly through OMERS membership or its broader impact in the province, according to CANCEA.

The research highlights that approximately $8.7 billion of GDP is a direct result of OMERS retirees spending their pension payments. This spending supports local economies across Ontario and gives a significant boost to these communities. OMERS investments and operations in the province contribute an additional $5 billion of GDP.

"We are focused on delivering on our pension promise to members and their families,” said Celine Chiovitti, OMERS Chief Pension Officer. “With changing demographics and an increasing proportion of the population over the age of 65, access to a pension plan has never been more critical.”

“As a pension plan that pays billions of dollars per year in stable, secure retirement benefits to our members, our impact reaches beyond payments to individual members. We are proud OMERS is positively contributing to hundreds of thousands of households, both urban and rural, across Ontario.”

A backgrounder including a breakdown of OMERS impact in each region across Ontario is available here.

The full CANCEA study can be found here.

Did you catch this part of the press release:

Based on a review of 2023 data, OMERS overall contribution to Ontario’s economy grew by 14% in the past three years. One in 11 households in Ontario are impacted by OMERS in some way, whether directly through OMERS membership or its broader impact in the province, according to CANCEA.

The research highlights that approximately $8.7 billion of GDP is a direct result of OMERS retirees spending their pension payments. This spending supports local economies across Ontario and gives a significant boost to these communities. OMERS investments and operations in the province contribute an additional $5 billion of GDP.

Now, for those of you who are unaware, OMERS is one of Canada’s largest defined benefit pension plans, providing public service and other employees in Ontario with a stable and secure income in retirement. 

For more than 60 years, it has humbly served as the steward and guardian of the retirement income of more than half a million active, deferred and retired municipal employees from communities across Ontario.

With a world-class team of investors and professionals across offices in North America, Europe, Asia and Australia, OMERS has generated $127.4 billion in net assets, as at June 30, 2023, and it will continue growing strongly for many more years.Led by Huntsville's man, Blake Hutcheson, and a highly qualified team, OMERS is doing its job ensuring that retired and active members working at police and fire stations as well as paramedics and other important public sector jobs can rest assured their retirement security is in good hands.As the press release states, today is  Pension Awareness Day in Ontario and OMERS joins OTPP, HOOPP, OPTrust, IMCO, CAAT Pension Plan and UPP in raising awareness on how important pensions are to the overall economy.Of course, every day is Pension Awareness Day here at Pension Pulse, I am providing a service to Canadians at large who want to understand where and how our large well-known pension funds (or pension plans in some cases) are investing.But I do think it's important to take a step back and look at the bigger picture as to why pensions matter and why we need to do a better job covering Canadians in the private sector who are falling through the cracks, anxious about outliving their savings during retirement. On Monday, I discussed why it may be time to expand the CPP again during the age of uncertainty, covering the thoughts of former Bank of Canada Governor now Special Advisor at Osler, Hoskin & Harcourt Stephen Poloz.Some actuaries on LinkedIn and privately disagreed with me stating there is a cost and risk born by Canadian contributors when we expand the CPP.My answer to them -- and remember, I'm coming at this from a right-of-center economic viewpoint -- is there is a much bigger cost to society if we maintain the status quo which will only ensure more pension poverty down the road.Don't get me wrong, these are smart actuaries and while I understand the points they're making, they fail to recognize the bigger risk at hand if we do not bolster Canada's retirement system and cover more people adequately in the private sector.And no, more financial literacy isn't the answer, expanding the CPP is the answer.I trade every day and probably know more about markets than the best CIOs out there and I'm telling you these are brutal and dangerous markets.It may not seem like that as the S&P hits a fresh record high but you will understand when it hits the fan and it won't be pretty.

Anyways, tomorrow I'll cover markets and take a sneak peek into the portfolios of the world's most powerful money managers and then tell you why you should ignore what they bought and sold last quarter.

Before I forget, earlier today, OMERS' new Chief Pension Officer, Celine Chiovitti, posted her thoughts on LinkedIn on rethinking “retirement” on Pension Awareness Day:

Today marks the second annual Pension Awareness Day, which presents us with the opportunity to reflect on what “retirement” means today and into the future.

With changing demographics and an increasing proportion of the population over the age of 65, access to a pension plan has never been more critical. Today, retirement looks different: we are living longer, and for many, retirement no longer means completely withdrawing from work. Instead, many are transitioning into flexible or part-time work, dedicating themselves to their community through volunteering or finding meaning and perhaps a small business opportunity in their hobbies. OMERS continues to modernize to serve our members wherever they are in their pension journey – from hire to retire and throughout retirement.

No matter how Canadians spend this chapter of their lives, they deserve access to meaningful income in retirement. Our mission at OMERS is to deliver a sustainable, affordable and meaningful plan to our 600,000+ members. In 2022, OMERS paid out $5.9 billion in pension benefits to 194,000 retired members.

As a leader in the pension industry in Canada, OMERS recognizes our responsibility to raise awareness about the value of having a secure and stable income in retirement, both for the benefit of our members and all Canadians. The value of a defined benefit pension plan goes beyond the cheque; many OMERS members have personally told me how their pension benefits have positively contributed to their lives and well-being. The effects also extend to their employers and communities, and more broadly to local, provincial and national economic and social well-being. In this regard, pensions can be considered “social infrastructure,” which is critical to ensuring our society remains vibrant, caring and productive.

This is supported by the economic and social value research conducted for OMERS by the Canadian Centre for Economic Analysis (CANCEA), with findings released this week which show that OMERS activities contribute approximately $13.7 billion to Ontario’s GDP annually. More than one in 11 households in Ontario are impacted by OMERS in some way, whether through membership or indirectly through the economic impact of our investments, operations and pension payments. OMERS investments and operations in Ontario, along with retirees spending their pension income, support more than 143,000 jobs provincewide. These findings underscore the substantial economic value OMERS provides to communities across the province, including significant contributions in central and northern Ontario.

To better understand the relationship between a secure and stable retirement income and Canadians' health and well-being in retirement, OMERS sponsored research last year, “Healthy Outcomes: Understanding the Impact of Adequate, Stable and Secure Retirement Income on the Ability of Canadians to Age Well and in the Right Place,” by the National Institute on Ageing (NIA), a think tank at Toronto Metropolitan University focused on the realities of Canada’s aging population.

The report reviewed the impact that financial security (both before and in retirement) has on the physical and mental health of Canadians, and found that there is a relationship between eligibility for pension coverage and better health outcomes. For working-age adults, income volatility can result in greater stress, which impacts health and well-being, and for older adults, sudden drops in their monthly or annual income could be detrimental if their income cannot cover the entire time spent in retirement, or if emergencies require financial resources. The study found that economic security and income stability play a role in reducing anxiety and stress.

Both the Healthy Outcomes report and the economic and social value research provide insight into the positive impacts of a secure and stable retirement income on the individual and their community. For the pension plan member, it is a financial value that also provides a better sense of life satisfaction, financial security, higher satisfaction with health, community involvement and lower stress. For employers, a pension plan, particularly a defined benefit plan, is a valuable retention tool, especially when competition for talent is so strong. And for communities, there is a higher likelihood for voluntarism, a high propensity for charitable donations and less reliance on government financial support when residents have a secure and stable source of retirement income.

The Canadian pension system acts as a cushion to reduce income instability in retirement, protecting older adults with a minimum income floor. Demonstrating the value of a defined benefit pension plan is important to ensure broad understanding and support for pension plans.

With an aging population and a blurring line between full-time work and retirement, we need to start thinking differently about what retirement means and how a defined benefit pension plan like OMERS can be part of the solution.

Very well said and let me congratulate Celine Chiovitti publicly for her well-deserved nomination, taking care of OMERS' most important assets, their 600,000+ members.If you ask me, OMERS contributes far more than $13.7 billion annually to Ontario’s GDP. No matter where you live in Canada, learn more about the importance of pensions in your province and communities.And lastly, it's important that you all note, the publisher of Pension Pulse has no pension or income whatsoever, and lives with the constant stress of having to eat what he kills.Fortunately, I'm very good at what I do but I'm also very cognizant that luck plays a role and a reversal of fortune can occur at any time.
When I tell you markets are dangerous right now, I know what I'm talking about because I live it every day before publishing my blog, I spend all day analyzing markets from A to Z (and helping my wife take care of a newborn but she does most of the heavy lifting there as my back problems have reemerged and I need a second back surgery to do fusion, argh!!).
This is why it's more important than ever to cover Canadians properly during their retirement years.The more Canadians we cover under a well-governed, well diversified defined-benefit plan, the better off the country will be (and again, I'm a right-of-center conservative guy stating this).Lastly, on this second annual Pension Awareness Day, I appreciate all of you who take the time to donate to this blog and support my efforts, it's greatly appreciated (top left-hand side under my picture).Below, an older interview with OMERS' CEO Blake Hutcheson which I really like, Listen to this exchange with Goldy Hyder, it's excellent.

And the Ontario Business Lifetime Achievement Award is given to a leader who demonstrates outstanding leadership throughout their career and has made a significant and positive impact on the province and beyond. 

This year’s award recipient is Blake Hutcheson, President and CEO of OMERS. Take the time to watch the interview below and learn more about Huntville's man.

And since OMERS recently acquired a 5% indirect stake in Maple Leaf Sports and Blake is a huge Leafs fan (Auston Matthews is awesome), a recap of the last game vs the Blues where rookie Bobby McMann had a breakout night recording his first career hat trick to lead the Leafs past the St. Louis Blues 4-1. Go Leafs Go! 

Wait a minute, GO HABS GO!!! (Slaf and rest of team are finally playing awesome hockey).

CDPQ Acquires Majority Stake in Japan's Inuyama Solar Project

Pension Pulse -

Earlier today, CDPQ issued a press release stating it has acquired an 80% stake in a solar plant in Japan:

CDPQ, a global investment group, today announced it has acquired an 80% stake in a solar power generation plant in Japan, alongside its portfolio company Shizen Energy Inc. (Shizen Energy).

The Inuyama project, which went into operation in the last few days, has a total solar power generation capacity of 31 MW, enough to power the equivalent of 7,850 homes. The solar power plant is located in Aichi prefecture.

This acquisition marks CDPQ’s first co-investment with Japan’s Shizen Energy as part of a JPY 50 billion (CAD 460 million) co-investment framework announced in October 2022, when CDPQ invested JPY 20 billion (CAD 186 million) in the company to support its growth. Both partners are currently exploring further co investment opportunities within the framework of this agreement.

Emmanuel Jaclot, CDPQ’s Executive Vice-President and Head of Infrastructure, said: “Japan plays a decisive role in the decarbonization of Asia and, as an experienced investor in renewable energy, we are delighted to join forces with our portfolio company Shizen Energy for this first joint investment in a solar plant. This transaction represents a further step in our partnership as we continue to explore more co-investment opportunities in the energy transition space.”

Oliver Senter, Executive Officer of Shizen Energy responsible for Investment & Finance, said: “We are delighted to announce a first co-investment project between CDPQ and Shizen. Inuyama is an ideal project for co-investment given that it was developed, built and will be operated by Shizen Energy throughout its lifetime. We have a pipeline of around 3 GW of renewable energy projects in Japan, which we hope to deliver in the next three to five years.”

About CDPQ

At CDPQ, we invest constructively to generate sustainable returns over the long term. As a global investment group managing funds for public pension and insurance plans, we work alongside our partners to build enterprises that drive performance and progress. We are active in the major financial markets, private equity, infrastructure, real estate and private debt. As at June 30, 2023, CDPQ’s net assets totalled CAD 424 billion. For more information, visit cdpq.com, consult our LinkedIn or Instagram pages, or follow us on X.

In October 2022, I covered why CDPQ invested ¥20B in Shizen Energy, its first direct infrastructure investment in Japan.

Now, just to give you an idea of how impressive this young company is, a year after receiving this commitment from CDPQ, it signed a 20-year virtual power purchase agreement (VPPA) with Microsoft to provide renewable energy from a solar farm in Inuyama City, Aichi Prefecture. 

This deal represented Microsoft's first PPA in Japan and was a major accomplishment for Shizen Energy.

And now CDPQ is getting in on the action taking an 80% stake in the Inuyama project.

With a partner like Shizen Energy signing 20-year VPPA with Microsoft, it's a no-brainer (those 20-year deals help pay long dated liabilities).

In related news, yesterday CDPQ announced an investment of $125 million to accelerate Levio’s growth:

CDPQ today announced an investment of CAD 125 million to support the acquisition strategy of Levio, a leading consulting firm that leverages its expertise to achieve digital transformations, tailoring new technologies to ever-changing business realities.

Founded in 2014 and now present in five countries, the company specializes in supporting institutional and corporate clients when planning, managing and executing large-scale digital transformation programs.

“CDPQ is proud to partner with Levio to support its expansion plan, which will grow its North American presence and consolidate its position in the market. Digital transformation is central to the sustainability and productivity of organizations, and this partnership is perfectly in line with our investment priorities and supports the company’s growth,” said Kim Thomassin, Executive Vice-President and Head of Québec at CDPQ.

“Today marks Levio’s first decade of operations. In addition to contributing significant value creation for our clients, these ten years have been characterized by strong, organic growth, complemented by strategic acquisitions which together, represented a compound annual growth rate of more than 40% over the past five years,” said François Dion, President and Founder of Levio. “With the arrival of CDPQ as a partner, we are looking to increase our rate of expansion to achieve our company acquisition strategy by associating with successful entrepreneurs, primarily in Canada and the U.S. This agreement provides us with significant financial leverage to continue building partnerships with our clients to execute large-scale digital transformations.”

In a context where new technologies enable evolving organization’s business models, Levio shares the risk of project execution with its clients and commits to delivering the expected solutions and benefits.

With a dozen acquisitions under its belt, Levio is a disciplined buyer that has demonstrated its integration capabilities through an approach that aims to develop new skills.

The company is currently entering a new expansion phase, primarily in North America, with a view to increasing its geographic footprint, further strengthening its value-added offering, and developing new business practices.

Levio currently has nearly 2,000 consultants working in 12 offices in Canada, the United States, Morocco, India and France.

As part of this transaction, Desjardins Capital Markets acted as Levio’s exclusive financial advisor.

ABOUT LEVIO

Levio is a digital native consulting firm providing services covering all aspects of digital transformation, from business strategies to information technologies (IT), to organizational management, including cybersecurity, data valorization, artificial intelligence and cloud computing. Since its creation in 2014, Levio has grown by leaps and bounds, and was listed on America’s Fastest-Growing Companies 2021 for its sustainable growth. Moreover, for a second year in a row, Levio ranks among the top 25 Best Places to Work in Canada according to Glassdoor.

The firm specializes in supporting its institutional and corporate clients when implementing digital transformation programs or mega-projects. For close to 10 years, Levio has built its reputation on an outstanding team of consultants who deliver substantial solutions benefiting from new technologies to help its clients gain efficiency and profitability.

Learn more about Levio at levioconsulting.com.

This part of the press release caught my attention:

In a context where new technologies enable evolving organization’s business models, Levio shares the risk of project execution with its clients and commits to delivering the expected solutions and benefits.

Not many companies do this and with this $125 million commitment by CDPQ, the company will expand its presence primarily in North America, "with a view to increasing its geographic footprint, further strengthening its value-added offering, and developing new business practices."

Lastly, it is worth noting that Charles Emond’s mandate as President and Chief Executive Officer of CDPQ was renewed last week:

Caisse de dépôt et placement du Québec (CDPQ) today announced that Charles Emond’s mandate has been renewed for a five-year period concluding on February 6, 2029. This appointment by the CDPQ Board of Directors was approved today by the Government of Québec pursuant to the organization’s incorporating act.

“Over the past four years, under Charles Emond’s leadership, CDPQ has delivered solid results in an atypical environment marked by unusual market conditions. In this context, and supported by his team, he introduced key strategic changes to the CDPQ portfolio to generate results that meet depositors’ needs and create value added. At the same time, CDPQ significantly grew its assets in Québec and mobilized its teams around several structuring projects in real estate and infrastructure,” said Jean St-Gelais, Chairman of CDPQ’s Board of Directors. “CDPQ will have to continue to navigate a complex context as it executes its mission in the coming years. As such, and in light of Charles Emond’s remarkable performance in recent years, the Board of Directors has decided to renew his mandate now,” he added.

“We’re facing tremendous challenges. The global environment has been volatile and uncertain since 2020—and that will continue. To achieve our ambitious objectives and keep striving to serve our depositors better in these back-to-back extremes, we must continue to evolve as an organization,” stated Charles Emond, President and Chief Executive Officer of CDPQ. “We’re privileged to work for an institution whose unique signature—constructive capital—is a great calling card that opens doors to the best partners and best opportunities around the world. CDPQ is also the pension fund most present in its local economy globally. I would like to thank the Board for their trust and I’m extremely proud to start this new chapter with the Executive Committee and all our teams.”

Mr. Emond’s second mandate is effective today.

Now, I would have been shocked if Charles Emond's mandate wasn't renewed over the next five years because he's doing a great job at the helm of this organization and it's not an easy job (probably one of the most stressful jobs among Maple Eight CEOs because CDPQ has a dual mandate and is always under the microscope).

There's a political dimension to the job and that part always worries me but thankfully Mr. Legault took the Board's advice and renewed Charles' mandate (you never know with these politicians).

Some more food for thought for my pension readers.

If CDPQ's Board wasn't satisfied with Charles, they wouldn't have renewed his contract for another five years and the same goes for all CEOs at these large Canadian pension funds. 

They are never fired openly; rather their contract isn't renewed for whatever reason and they depart the organization.

That's the way it works at these large shops (but some CEOs who experienced this are obviously more sensitive than others).

Alright, let me wrap it up there.

Below, Shinzen Energy's purpose is to "take action for the blue planet". They therefore provide every service to accelerate and co-create a 100% renewable-powered planet.

AIMCo Opens New York Office to Expand Private Credit

Pension Pulse -

Allison McNeely and Paula Sambo of Bloomberg report AIMCo opens New York office in credit push:

Alberta Investment Management Corp., one of Canada’s largest pension plans, is opening a New York office as it pushes further into private credit investing.

The $164-billion pension is looking to grow its $6 billion of private credit assets by a couple of billion dollars over the next five years, chief investment officer Marlene Puffer said. Meanwhile, it’s opening a New York office to be close to many of its biggest U.S. managers.

“We’re getting much more strategic about relationships with general partners,” she said.

AIMCo is already active in middle-market private credit. It will focus on expanding its investments in large-cap private credit based in the U.S., aiming to do co-investments alongside fund commitments, Puffer said.

AIMCo’s office at One Vanderbilt, near Grand Central Terminal, is opening with five professionals focused on private credit and one on private equity, with plans to grow to around 25 to 30 people in the next five years, she said.

The Alberta pension plan hired David Scudellari in 2023 as head of international investment.

Private credit has grown into a US$1.7-trillion asset class as higher interest rates have drawn investors and bank financing for deals has dried up.

AIMCo invests on behalf of 15 pension, endowment and government clients in the oil-rich Canadian province.

Earlier today, AIMCo issued a press release stating a US presence expands investment

New York/Edmonton – The Alberta Investment Management Corporation (AIMCo) today announced that it has further expanded its global footprint by opening an office in New York.

“Our physical presence in important financial markets like New York greatly enhances how we source, evaluate, and ultimately execute on investments to further diversify our asset mix for the clients we serve,” said Evan Siddall, Chief Executive Officer, AIMCo. “We have a significant client mandate to grow our private credit portfolio, and having a team based in Manhattan will also help us accelerate our efforts in this key asset class.”

AIMCo’s New York office brings the firm’s total number of global offices to seven, including Edmonton, Calgary, Toronto, London, Luxembourg, and Singapore. The office in Singapore was opened in the fall of 2023. The organization’s presence in these countries provides access to deeper pools of talent that bring nuanced country- and sector-specific knowledge to secure the best investment opportunities.

“Our New York office, in the heart of one of the world’s most important financial hubs, will also provide us with the presence and proximity required to both develop and deepen critical relationships with our investment partners,” said David Scudellari, Senior Executive Managing Director, Head of International Investment, based in AIMCo’s New York office. “These relationships are a critical element of successfully executing on our investment strategy.”

About AIMCo

AIMCo is one of Canada’s largest and most diversified institutional investment managers with more than C$164 billion of assets under management. AIMCo invests globally on behalf of pension, endowment, insurance, and government funds in the Province of Alberta. AIMCo manages approximately 30 pools of capital on behalf of these clients. With offices in Edmonton, Calgary, Toronto, London, Luxembourg, New York, and Singapore, our more than 200 investment professionals bring deep expertise in a range of sectors, geographies, and industries.

Alright, so AIMCo is opening up a New York office to expand its private credit operations.

If you look at AIMCo's 2022 Annual Report, you will see the performance benchmarks for all asset classes:

In Private Debt (Credit) it's 40% S&P/LSTA Leveraged Loan Index + 40% S&P European Leveraged Loan Index + 0.90% (CAD hedged)'

According to the annual report:

The portfolio generated a 6.2% net return for the year 2022, outperforming the benchmark by 6.3%. The return was driven by a diversified, resilient portfolio consisting of primarily senior secured, floating rate loans that sit at the top of the capital structure and benefit from a rising or high interest rate environment.

The Private Debt & Loan team remains focused on credit selection, portfolio  diversification and a partnership approach to deliver stable, attractive risk-adjusted returns throughout a cycle.

I'm not sure exactly how much exposure AIMCo has to Private Debt but I reckon it's less than 3% (data isn't available in their annual report).

And they want to grow it to 5% or more of total portfolio (that's my thinking).

Now, recall AIMCo CEO Evan Siddall recently wrote a comment stating ‘shadow banks’ aren’t a problem for the financial system, they are the solution.

I shared this on the rise of private credit:

Now, I'm much more comfortable with large, sophisticated pension funds investing in Blackstone, Apollo and other large funds because they have the long investment horizon and sophistication to understand the risks involved.

Again, we have not had a serious recession in a while and if that happens, private credit will be battle tested.

That's why Pimco is taking a contrarian bet here. 

And this is why I'm reticent to recommend private credit at large to investors.

If you're going to invest in the space, make sure you go with someone experienced like Antares Capital (see recent comment where Andrew Edgell,Senior Managing Director & Global Head of Credit Investments at CPP Investments talked about how he sees private debt faring in the credit cycle ahead).

The way I see it, the problem isn't with the top funds in the space, it's with new entrants, including big banks, which I call the Johnny-come-lately funds who take a lot more risks to make bigger returns.

That's a disaster in the making and it will reverberate across the industry.

So let me be clear, I'm not worried about Apollo, Ares, Blackstone, Brookfield, KKR and other experienced funds who are underwriting their loans very conservatively. I'm a lot more worried about newer funds and even banks which are now entering the space and taking risks they shouldn't be taking at this point of the cycle.

And yes, I am still very worried about a hard landing and how this will test the asset class:

The Bloomberg article quotes AIMCo CIO Marlene Puffer as saying the Fund is already active in middle-market private credit and it will focus on expanding its investments in large-cap private credit based in the US, aiming to do co-investments alongside fund commitments.

To do this properly they need to build on their strategic relationships and the person in charge of this is David Scudellari, Senior Executive Managing Director, Head of International Investment (featured above standing at Evan's left side).  

Recall David came to AIMCo from PSP Investments where he was in charge of building up their private debt portfolio, the second best private debt portfolio in Canada right behind CPP Investments.

So David is a veteran who understands the game well and he will leverage those strategic relationships with key funds to do more co-investments in large-cap private credit, paying no fees and expanding the asset class at AIMCo.

David is also an American who originally came to Canada from New York City so now he's going back home.

If you're wondering why Canada's large pension funds open offices in strategic cities like London, New York, Singapore and other places, it's to have boots on the ground developing and leveraging off key relationships and to provide flexibility to attract top talent.

AIMCo does this well and it has to do this well because it's hard attracting talent to Edmonton or Calgary, they need to be flexible and have their best employees working all over the world.

The same goes for all of Canada's Maple Eight. Flexibility is the key.

Below, Marlene Puffer, chief investment officer at AIMCo, joins BNN Bloomberg to talk about investment landscape, and how the institutional investor navigates economic backdrop.

Marlene discusses the push in private credit in a higher for longer environment and why they're expanding their presence in the US.

Time to Expand the CPP Again During the Age of Uncertainty?

Pension Pulse -

Claude Lavoie wrote a an op-ed for the Globe and Mail stating we can all have federal workers’ ‘gold-plated’ pensions – just expand the CPP:

Many people rage at (and envy) the “gold-plated” retirement plan for federal employees. Common complaints are that it’s unfair and overly generous in comparison with their own plans. But perhaps they should be asking why their plans are not as generous as the public sector’s.

The CPP currently replaces 33 per cent of average lifetime income (up to a maximum), which is well below the estimated 60 per cent to 70 per cent necessary to maintain a similar standard of living in retirement. While some lower-income workers can reach this threshold through the accumulation of Old Age Security, Guaranteed Income Supplement and CPP benefits, the vast majority of workers must count on their ability and financial knowledge to invest adequately. About 75 per cent of private-sector workers do not have an employer-sponsored pension plan and, according to a study by Deloitte, about 55 per cent of near-retiree households are at risk of a significant drop in their standard of living.

Increasing the generosity of the CPP would ensure that every Canadian saves enough and receives a good pension at retirement. It would also bring a plethora of additional benefits to every worker, even those who have managed to save sufficiently.

Workers bear all the financial risks of their retirement funds, except for the few (mainly civil servants) with a defined-benefit pension plan. This includes the risk of outliving their retirement savings or seeing the value of their retirement funds drop abruptly because of market corrections. An expansion of the CPP would transfer these risks from individual workers to the government, which is much better placed to manage them, as it can pool risks across all Canadian workers and across generations of workers.

An expansion of the CPP would shelter retirement savings from high management fees associated with many private retirement savings vehicles. The CPP is also fully portable, making it easier to change jobs. And a higher amount of assets in the hands of the CPP Investment Board (CPPIB) could allow more investment in the Canadian economy.

There are obviously some costs – some perceived and some real – associated with expanding the CPP.

Increasing the generosity of the CPP would require higher contributions from employees and employers so the system remains fully funded. Employers not currently contributing enough to their employees’ pensions will argue that these higher contributions will kill jobs. However, the recent CPP expansion shows that these fears are overblown. Employer contributions have increased 20 per cent since 2019, yet employment has performed very well during that time if you discount the pandemic. Note that CPP premiums were also hiked 70 per cent between 1997 and 2003, yet the employment rate rose strongly. The economic impact is small because employer contributions are a small part of the overall compensation to employees and increases in contributions are gradually offset through market forces by other elements of the compensation package, including wages. And workers seem to be okay with this: Almost 70 per cent of respondents to a recent survey said they would take a better pension over higher wages.

It’s true that workers will have less disposable income during their working years so they can enjoy a better standard of living in retirement. This could be problematic for some lower-income households but could be addressed through complementary measures such as increases in the Canada Worker Benefit, for example.

Expanding the CPP would also expose a greater proportion of Canadian retirement savings to the risk of poor investment decisions by the CPPIB. We saw this with the Caisse de dépôt et placement du Québec and its handling of Quebec Pension Plans funds in the early 2000s. However, this could be easily managed with strong governance standards and the potential creation of a few different investment entities, each responsible for a share of CPP assets and each separated by information walls. At the same time, the CPPIB has a solid track record, delivering an average return of almost 10 per cent over the past decade, and its sound governance and performance have been internationally recognized.

A secure, generous, fully indexed, defined-benefit pension for all Canadians is not a pipe dream. It’s a highly feasible possibility. Could we shift the discussion from Alberta’s (pretty bad) idea to leave the CPP to a more serious discussion about expanding the system? Since we need most of the provinces on board and a few decades for everybody to reap the full benefits, we should start this discussion now.

Claude Lavoie was director-general of economic studies and policy analysis at the Department of Finance from 2008 to 2023. He has represented Canada at OECD meetings and has received many honours, including the Queen’s Diamond Jubilee Medal.

I read this article last week and generally agree with it minus the nonsense about how expanding the CPP would also expose a greater proportion of Canadian retirement savings to the risk of poor investment decisions by the CPPIB. 

The governance at all of Canada's Maple Eight pension funds is a hundred times better than it was back in the great financial crisis (GFC) and that includes CDPQ.

As far as CPP Investments, in my expert opinion, it still has the best governance of all the major Canadian pension funds, PSP Investments coming a close second (and I use all elements of governance, especially transparency).

But I agree with Claude Lavoie that we need to further expand the CPP or create another entity modeled after it to allow all Canadians working across the public and private sector to enjoy the benefits that come with a defined-benefit plan.

It's the right thing to do for retirement security and for the Canadian economy as a whole because as more people retire in dignity and security, they can spend more and governments can collect more taxes.

And again, this isn't socialism, this is good pension policy and doing what's right for the broad population.

TFSAs, RRSPs and every other savings vehicle doesn't compare to a well governed DB plan.

Interestingly, some of the country's most respected voices are also opining about retirement security.

Recall back in November, HOOPP which has long been an advocate of retirement security in Canada discussed a paper written by former Bank of Canada Governor now Special Advisor at Osler, Hoskin & Harcourt Stephen Poloz on Pensions in the Age of Uncertainty which was written for HOOPP:

Executive summary

Life consists of childhood, education, work, and retirement. Ensuring it all goes well financially requires saving during work to provide adequate income for retirement. It is very hard for a typical household to guess how much to save during their working years, since they can only guess how long they will live, what cumulative income they will earn, or what investment returns they can count on.

I will argue below that these uncertainties will continue to rise in the years ahead, laying a heavy risk burden on a majority of Canadians. People will respond to rising risk by carrying larger financial cushions during their working lives and continuing to do so through retirement. Rising macroeconomic uncertainty will therefore mean a lower path for household spending, slower economic growth, and lower government tax revenues, relative to the past.

A more efficient, more prosperous, and more societally desirable path is possible – a path where a more robust pension system helps people manage their rising retirement risk. If income, investment and even longevity risks continue to rise through time, then the societal value of stronger pension coverage will also rise through time. In other words, all sides of the equation – whether individuals, companies, or governments – will be increasingly willing to pay for pension coverage. The more individuals so covered, the higher will be our consumption spending path and our overall economic growth rate. Government tax revenues will track higher, too, a fact often lost in the conversation about Canada’s pension system.

In this paper I will elaborate on these arguments, and will conclude with a discussion of the steps governments might take to encourage more pension coverage for Canadians.

Pensions in Canada

Pension coverage in Canada has been relatively steady at around 40% of workers for nearly 50 years.1 Within that figure, private sector coverage has been falling, most recently to around 24%, while public sector coverage has been rising, to around 90%. There has been a gradual shift away from defined benefit (DB) plans in favour of defined contribution (DC) plans, especially in the private sector, as companies have attempted to mitigate rising investment risk, essentially by shifting those risks back onto their employees.

The other 60% of Canadians rely on a government-sponsored registered retirement savings plan system, which allows them to divert pre-tax income to their retirement years, up to a maximum percentage. Over 20% of Canadians participate in this arrangement. This channel of retirement savings of course is affected by the same rising trend in investment risk that has led many DB plan employers to switch to DC plans.

After that, the Canada Pension Plan (and the companion Quebec Pension Plan), mandated and managed by governments, stand as the final retirement financial backstop. This plan puts a floor under retiree living standards, but a modest one.

And then there is the true Canadian nest egg, the family home. Canadians own something like $6 trillion in real estate, against which there is approximately $2 trillion in mortgages outstanding. To put this in context, net household wealth in real estate of about $4 trillion is about double the size of Canada’s total economy. Of course, that wealth is very unequally distributed among individuals. But people who manage to pay off their mortgage during their working lives are sitting on a significant pension plan and many behave accordingly.

About two-thirds of Canadian adults own their home, and according to the Healthcare of Ontario Pension Plan’s (HOOPP) latest Canadian Retirement Survey, about one third of those households are planning to sell their home to help fund retirement.2 This can involve more than one path: they can downsize when the nest is empty, sell and become renters or enter a multi-generational living arrangement, or simply use a reverse mortgage or a simple home equity line of credit to tap into the equity stored in the family home. Even so, rising income and interest rate volatility are working to erode this end-of-life flexibility. First, home ownership accessibility is clearly declining. The tax exemption of capital gains on the primary residence makes it significantly easier for homeowners to save for retirement as opposed to renters, and this avenue is becoming less open as housing prices rise. Second, interest rate volatility and the implied volatility of home valuations are making this retirement backstop far less reliable than in the past.

To sum up, not much has happened in Canada’s retirement space for a long time, and it is not because a majority of Canadians already enjoy a high level of lifetime income security.

Retirement risks are rising…

Many Canadians are feeling less secure about their future. For the first time since Confederation, many Canadian adults fear that their children will be less well off than they are.

These concerns have many drivers, including Canada’s relatively poor productivity performance and the perceived impact of the global energy transition on our resource-based economy. But these concerns are also founded on the rising trend in economic and financial volatility we have been experiencing, which is not unique to Canada. A major source of adverse volatility was the so-called Third Industrial Revolution, which saw the proliferation of the computer chip and the wave of globalization that it enabled. People lost their jobs in the process. As occurred during the First (steam engine) and Second (electricity) Industrial Revolutions, spreading deployment of the computer chip led to falling prices in many parts of the economy; central banks kept interest rates “low for long”; financial imbalances grew, and the Global Financial Crisis of 2008 was thrust upon us. In the background, the level of productivity in major economies rose significantly – by at least 10 percentage points during 1995-2005 in the US, for example. Also, consumer purchasing power rose as globalization and rising productivity pushed the prices of many ordinary goods lower. This is how the benefits of technology and globalization were shared beyond the inventors and deployers of computers. However, the path followed has been anything but easy, and not everyone has benefited equally.

An era of mediocre economic progress followed the Global Financial Crisis. Recessions were followed by jobless recoveries. Wall Street was bailed out, while Main Street paid the bill, and since that time the world seems to have stumbled from one difficult situation to another, never seeing clear skies ahead. If the global pandemic of 2020 was seen as the worst things could possibly get, people were to be disappointed, for the post-pandemic world has been punctuated by other kinds of outbreak: a surge in inflation, aggressive interest rate hikes, an emergent cold war with China, an actual shooting war with Russia, a spate of bank failures.

Some would say that we have had a run of bad luck and are due for some good luck. But what if this is not all bad luck, but the product of identifiable forces acting beneath the surface of the global economy? Forces that are very slow-moving and yet incredibly powerful, but rarely figure into economists’ forecasting models? And what if these forces are all likely to continue growing in strength during the next 10-20 years? That would mean we are facing a rising trend in economic and financial volatility, and what we have been experiencing is not just a blip or a run of bad luck, but something destined to continue, and something we should prepare ourselves for.

This is the proposition I lay out in my book, The Next Age of Uncertainty.3 I identify five tectonic forces that are shaping our future: population aging, technological progress, growing inequality, rising debt, and climate change, and consider their implications for the future.

Population aging is producing a major retirement wave, a shortage of workers and falling productivity. Digitization of business and emergent artificial intelligence – the so-called Fourth Industrial Revolution – are expected to disrupt 20-30% of all jobs while boosting productivity substantially. Some 70% of global citizens have lived through a deterioration in income inequality during the past ten years, a trend that can be ascribed to the Third Industrial Revolution, and the rapid pace of technological change implies that this will only worsen in the next 10-20 years as the Fourth Industrial Revolution unfolds. Debt has exploded everywhere, and now that interest rates have moved higher, every shock to the economy is magnified as it interacts with debt. And climate change? A theoretical concept measured in fractions of a degree spread over 3-4 generations has suddenly become real, with raging forest fires and growing water stress. A forced transition to net-zero carbon emissions is one consequence, but the path society will take toward that goal remains highly uncertain and will cause significant structural change in the economy.

Each of these tectonic forces can disrupt our future all on its own. But it is the potential interactions between them that raises the most concern, because they can magnify one another in unpredictable chain reactions. There is a branch of mathematics that analyzes the interactions between nonlinear processes like these, called chaos theory. The name says it all. The economic and financial episodes that can emerge from this complex combination of forces are the equivalent of earthquakes – we all know that the earth’s tectonic forces bear the potential of a major seismic event, “a big one”, but we never know when it will actually occur.

I conclude that our future will be more volatile in general, verging on the unforecastable. Rather than one recession/recovery cycle every decade or so, there may be three. Job losses will become more frequent, usually for shorter intervals, but there will be an ongoing tug-of-war between a growing shortage of workers and a major labor-saving technological wave. Lifetime cumulative income will become far less certain for individuals. There will be bigger and more frequent interest rate and financial market fluctuations, a very challenging environment for investors and, by extension, for those saving for retirement. In short, retirement risk is on the rise.

…Creating a growing role for pensions

A majority of Canadians probably believe that governments will somehow protect them from this predicted rising tide of risk, as they did during the COVID-19 pandemic. However, a massive amount of government fiscal capacity was expended during 2020-23. Globally, governments are more indebted today than they were at the end of World War II, and there are few signs that they are attempting to rebuild that capacity. Indeed, in many countries, the stock of government debt continues to grow despite the full recovery of economies from the pandemic.

Back in 1945-64, a major surge in global population (the Post-War Baby Boom) offered the prospect of a growing base of taxpayers to pay down the wartime government debt. This could not be less true today. The global population is aging rapidly as the baby-boomers work their way through their life cycle. The fiscal drag from the health care needs of this generation will grow for the next 10-20 years. In this respect, we should note in particular the growing incidence of dementia among the baby boom generation, which is even more costly than most other late-life diseases. Further, the peace dividend that the world has been enjoying since the fall of the Berlin Wall has evaporated in the post-pandemic period. Most governments will find it necessary to increase public spending on military readiness, not to mention cyber defence and terrorism.

Therefore, I am skeptical that governments will be capable of protecting citizens from rising economic and financial risk, if only because their fiscal capacity is so limited. On top of this, governments are finding it increasingly difficult to get things done except in the midst of a crisis, even when there are no financial costs involved. Politics has simply become too hard to do, proposed policies have all become too contentious and polarizing, regardless of how well thought out they may be. At the root of this polarization is rising income inequality, and the unfolding Fourth Industrial Revolution suggests that this trend will continue to worsen in the years ahead.

At a minimum, the basic mathematics of government finances suggest that governments will need to focus on developing new policies that are essentially self-financing – either by raising taxes specifically to pay for a policy shift (say, a special tax to finance increased military spending), or by focusing on policies that enable economic growth to rise and thereby generate more tax revenues automatically. An example of the latter would be to streamline project permitting processes so that less productivity evaporates while major investment decisions are delayed. A recent policy success was the development of a low-cost childcare program, which has allowed many young parents to join the workforce and expand Canada’s economic potential while generating new tax revenues.

In light of these constraints on governments, I expect that rising economic volatility and risk will land directly on the doorsteps of companies and households. This is where most of the adaptation to a riskier world will happen, with the two parties often working together with a shared objective. Given our demographic outlook, companies will be working in a world that is relatively short of workers. This is in sharp contrast to the past 50 years, where the world had a surplus of workers coming from the baby boom of post-World War II. Companies will be looking for ways to improve the lives of their employees, beyond just raising wages. I think of this as investing in the “S” of “ESG”.

If a firm places extra value on an employee, then it will be in the best interests of the firm to help address any angst that the employee is feeling. Today, this angst appears to be coming from high levels of volatility in the economy – more recessions, more periods of unemployment, inflation volatility, large fluctuations in interest rates and financial markets, and so on. As a precursor to this predicted shift in company behaviour, consider the current debates around working from home versus being present in the office, which are clearly falling toward employees; consider also the sudden increase in work stoppages and strikes in the wake of the global inflation shock of 2022-23.

This brings us to pensions. The pension concept has nearly unlimited potential as a tool to manage rising retirement risk. If Canadians are worried about their future – wondering what their cumulative lifetime income will be, how much they must save for retirement, what their investment returns will be, what their family home will be worth – then a well-structured and reliable pension would be just the ticket to reassure people and allow them to go about their lives with confidence. In this sense, a solid pension acts like an automatic stabilizer of the economy, allowing people to forge ahead when a shock throws the economy off course and can be a direct substitute for many government income stabilization programs.

Naturally, the idea is mostly simple arithmetic – in theory, any citizen can develop a life plan with sufficient savings in the front half to support them in the second half. There are financial products that help them to do this. And if their employer wished to help their employees with this top concern in life, they could do so by contributing some of the costs involved. Indeed, many employees appear willing to accept less take-home pay in exchange for more retirement security.4 This is entirely rational given the uncertainties involved, and the value of such an arrangement is rising as uncertainty rises. And yet, the level of pension coverage in Canada has remained static for many years.

Individuals who must manage their own investment risk on their pool of savings, and also must manage their own longevity risk, will save too much, almost by definition. In other words, they will die with leftover savings. In the next age of uncertainty, they will save even more, carrying larger financial buffers and dying with a rising trend in leftover savings. Saving too much is the same as spending too little; this implies a less satisfactory life overall, less dignity in retirement, and raises the odds of a stagnant economy as our population ages.

Some have argued that population aging over the next 20-30 years will lead to a major shift from saving to consumption spending, and even prove to be inflationary. This might be true for individuals who have certainty about the future, including the future value of the stock of savings they have accumulated, and the length of time that those savings need to support. Individuals cannot possibly internalize their longevity risk, except by over-saving or by pushing their retirement date, and investment risks will rise along with employment risk through time. With some 60% of Canada’s population dealing with all these risks by themselves, I believe the balance of risks tilts in the direction of a lackluster, potentially deflationary track for the economy as our population ages.

Of course, rising macroeconomic risk needs to land somewhere. If a much larger share of the population were to be covered by a DB pension plan, households would operate with much more certainty, they would probably stop saving altogether (beyond the demands of their pension plan), and the economy would have a much stronger growth trajectory. But who would be managing the risks that enabled all this? Almost certainly not individual firms, particularly since some 80% of Canada’s total employment is at small and medium-sized enterprises that undoubtedly believe they could never come to grips with the costs and risks involved in providing a pension with defined benefits.

The benefits of retirement risk pooling

Firms and individuals alike will willingly pay for protection from risk, and the rising tide of risk we can expect in the future will make them willing to pay more and more. This line of reasoning points strongly toward a natural renaissance of the DB pension plan in the years ahead, or at least something with a majority of those characteristics. A DB pension protects the beneficiary from unexpected inflation, from financial market volatility (investment risk), from longevity risk (outliving one’s savings), as well as from the risk of prematurely losing one’s breadwinning partner.

The macroeconomic benefits of such a risk reduction are obvious. People who are not worried about the future live better, spend more and create more economic growth than a worried economy. That same economic growth generates company and government tax revenues and reduces the need for other stabilization policies from governments. In other words, risk mitigation can, in large part, pay for itself, viewed through a macroeconomic lens.

Of course, a DB plan manages all these risks by shifting them to the employer. Historically, this has often proved to be too much for an individual employer. For example, the steady decline of interest rates for much of the past 40 years caused an explosion of DB pension liabilities as implied discount rates fell. No less important is the growing longevity of individuals. Plans parameterized around lifespans of 75 years can be blown up as people live to 80 or 90. Moreover, some 80% of Canadians are either self-employed or work for small or medium-sized businesses, for which sponsoring a DB plan is simply out of reach.

These shortcomings of DB plans are fundamentally market failures. In a perfect capital market, those shortcomings would not arise. Risks can be minimized through pooling, making pension provision a business that benefits tremendously from scale. Clearly, imperfections in the marketplace are somehow preventing the appropriate agglomerations that would create a stable and self-sustaining system.

Often this brings the conversation around to strengthening the government-provided pension system (Canada Pension Plan, Quebec Pension Plan). A significant increase in the benefit levels of that system, which is what might be needed to manage the risks that we face going forward, would almost certainly flounder given the fiscal and political stresses we face already. Such conversations inevitably ignore the macroeconomic benefits, not to mention the mental health benefits, of reduced lifetime income risk. The discussions of the future of the Canada Pension Plan back in 2018-19 appeared to take no account of the potential for higher economic growth and therefore higher government tax revenues that might result from increased retirement security. The extremely gradual pension plan enhancement eventually agreed upon was the product of negotiations around how much the plan would cost, and how much employee and firm contributions would need to rise, rather than these wider macroeconomic and fiscal benefits.

This suggests that the clearest avenue forward is for government to promote more pooling of pension schemes in the private sector. The biggest risk faced by an individual is longevity risk. Even if life expectancy is easy to track and to predict at the aggregate level, for an individual it is nearly impossible. Entering a pool with a large number of other individuals essentially eliminates this longevity risk, making pooling extremely helpful on these grounds alone. These benefits accrue not only to individuals, but of course to their employers, who may be very reluctant to sponsor a pension plan based on longevity risk alone. Even firms with 100-200 employees could be highly exposed to this risk; firms of 50 or fewer employees prohibitively so.

Pension pooling also creates scale that reduces average fixed costs associated with fund management, while at the same time enabling sufficient depth and diversification to bring investment risk to a theoretical minimum. These benefits are considerable: HOOPP (2018) calculates that replicating a 70% income replacement rate in retirement by an individual costs nearly $900,000 more over a lifetime than it does to participate in a Canada-model DB plan.5  Of course, investment risk cannot be made to disappear at any point in time, but by aggregating many individuals not just across the same age group but through the entire age spectrum, a pension pool creates significant timewise averaging. In effect, younger contributors can help support retirees during adverse financial market events, simply because they have a long horizon in front of them. For example, workers who planned to retire at the end of 2008 who were not participants in a plan faced a significant loss of retirement wealth, and many were forced to delay retirement until markets had recovered. This risk is vastly reduced when pooled with younger workers.

A diminished role for housing?

Wider participation in DB pension plans in Canada could have a significant impact on the housing market, but it is not obvious in which direction.

In effect, the incentive to save for retirement through housing would be diminished if more people were covered by pension plans. If housing services were seen more as a consumable rather than a core investment vehicle, greater indifference between renting and owning could emerge, thereby reducing the propensity to own a home. At the same time, rising economic and financial volatility will mean that home ownership will be riskier and potentially less valuable as a lifetime savings vehicle, perhaps leading to a structural shift toward renting beyond that being forced by declining housing affordability.

Of course, it is also possible that higher lifetime income security due to participation in a DB pension plan would make individuals even more willing than now to take on a large mortgage to own their home. At the same time, it is possible that rising retirement income security would make it feasible for financial institutions to offer much longer mortgage amortization schedules than they do now, or offer housing finance schemes that support shared ownership or shared-equity mortgages. Therefore, it is possible that wider pension coverage could lead toward even higher rates of home ownership, all things considered.

Either way, wider pension coverage would serve to reduce the vulnerability of the typical household to big fluctuations in the housing market. Since greater volatility in housing would be an inevitable consequence of rising macroeconomic risk, wider pension coverage would again serve to stabilize the economy.

The path forward

The gist of this analysis is that Canadians are less prepared for retirement than they should be. And given the rising tide of economic and financial volatility that is on its way, they are less prepared than they think they are.

I believe that there are natural forces in motion that should foster a renaissance of the DB pension plan. The biggest risk that companies will face is of not retaining the human resources they need to execute their business, and enhancing lifetime security through DB pension plans is one tool they will turn to. Governments would be well advised to find innovative ways to promote this renaissance, and to bring forward policies that will make it happen more easily.

In this respect, the retirement system needs to be thought about along with all the other things governments do for people throughout their lives. Among other things, this would mean ensuring that there are no barriers to participation in existing pension plans, whether by individuals acting alone, by individuals acting along with contributions from their private-sector employers. Indeed, it may make fiscal sense for governments to create even richer tax incentives to encourage such pension participation, because tax revenues would rise and the use of other fiscal stabilization channels would decline. Such tools should be explicitly designed with small companies, part-time workers, gig workers, and self-employed individuals in mind. A fulsome review of both Federal and Provincial pension regulations with a view to expanding DB plan participation in these ways should be undertaken. Plans that have been set up for a specific constituency are fine, provided that they are sufficiently large to maximize pooling benefits. Allowing such plans to broaden their constituencies or to merge with others, or promoting the creation of new pension umbrellas to create more scale, seem like the right way forward. Throughout, governments need to be mindful that the internationally acclaimed Canada pension model is founded on operational independence, a valuable characteristic worth maintaining.

Today, governments are ill-prepared to act as a fiscal backstop should a retirement crisis emerge. Even so, a more aggressive enhancement of our foundational government-provided pension plans (CPP, QPP) should still be considered. A fulsome cost-benefit analysis of such an enhancement needs to take into account the potential tax revenue benefits that would come from higher average economic growth in a setting with higher retirement security, as well as the savings in health care costs (both physical and mental) and other fiscal stabilization expenditures that would be likely to accrue in a world with broader robust pension coverage.

Housing undoubtedly will remain core to the retirement plans of many Canadians, even though home ownership is becoming less attainable through time. Governments are in a position to foster more lifetime flexibility on this front, too. Housing finance today is locked in a very old model grounded in 25- or 30-year amortizations and specific requirements around down payments. A more flexible approach would allow households to aspire to varying levels of partial home ownership, shared equity mortgages, or longer amortization periods, provided there is an investor or pool of investors on the other side of the trade. Such reforms would help preserve housing as a channel of retirement security, while also improving housing accessibility today.

Another potential mitigant of rising retirement risks is for governments to encourage individuals to work longer, even if on a part-time or occasional basis. This would include keeping pensions highly flexible so that people can choose from many different paths forward in the later years of life, without compromising their income security.

Retirement is becoming a bigger share of everyone’s total lifetime as longevity rises. Canadians used to work most of their lives, retiring at 65 and dying 7 years later. Now they may work for only 70% or even 60% of their lives. Yet life has become riskier, and many signs suggest that it will become even more so, reducing the quality of life for a large cohort of our society. The arithmetic of lifetime income risk has been altered significantly. The social benefits of a more robust pension system could be unmeasurably large, and we need to bring a more holistic lens to the conversation.

These are great insights from Stephen Poloz, someone I worked with ages ago at BCA Research, someone I respect and admire.

Steve understands the tectonic shifts that are underway now and he feels they will cause more financial and macroeconomic uncertainties.

In light of this, now more than ever it's critically important to reduce retirement risk so Canadians that are living longer can plan better for retirement and not worry about outliving their savings.

I come at this from a right of center point of view, good retirement policy is good economic policy over the long run.

The private sector solutions are woefully inadequate so we need to either enhance the CPP, introduce a new entity with similar governance to manage private sector pension plans (DB and DC) or make it easier for CAAT Pension Plan, OPTrust, IMCO, UPP and others to provide DB solutions to more Canadians working across the public and private sector.

I look at markets constantly. At the end of each trading day, I can tell you what moved and what's probably going to move.

I haven't seen this much concentration risk since the tech bubble of 2000, it's absolutely insane.

These aren't the type of markets you want people to be speculating in to be able to retire in dignity and security.

And what about housing? Steve Poloz mentions that housing will always play a role in the retirement security of Canadians and today I noticed a Globe and Mail article Andrew Molson posted on LinkedIn on how Canadian seniors are staying in large houses well into their 80s, due in part to lack of options:

A Canadian Mortgage and Housing Corporation report in November found that the sell rate for each five-year age cohort for those aged 75 and over has been trending downward since the early 1990s, putting increasing pressure on the housing market.

The report, titled Understanding the Impact of Senior Households on Canada’s Housing Market, said the sell rate among that age group has fallen about six percentage points in the past 30 years.

Seniors are now less likely to sell their homes before age 85, it said, noting the demographic shift needed to free up a meaningful amount of housing stock won’t start happening for several years. “According to Statistics Canada’s demographic projections, population growth in the 85-and-over age group will be higher from 2030 to around 2040.”

CMHC economist Francis Cortellino wrote a large part of the report, and said “better health and better wealth” is part of what is keeping people at home longer, but so is a lack of options. Those who would be willing to downsize, he said, are often stymied by a lack of housing variety in their communities, so they stay in their homes to remain close to their friends.

“Solutions aimed at increasing supply from existing units (by creating secondary suites or laneway homes, for example) could be increasingly considered.” the report said.

Mr. Cortellino said that in many of Canada’s large cities, seniors living alone or couples over age 75 are more likely than young families to live in single-family homes with three or more bedrooms. (A Globe and Mail analysis of 2021 census data found the percentage of singles and couples who live in homes that have a minimum of three bedrooms increased to 29 per cent that year, from 26 per cent in 2006.)

He said he’s found anecdotally that many people are instead “downsizing from the inside” – only using a small part of their house, often the ground floor, and often closing off or limiting heating in the rest.

Several other reports confirm parts of his findings. Real estate and mortgage company Redfin published a report in January that found that in the United States, “empty-nest baby boomers own 28 per cent of the nation’s large homes [with three or more bedrooms], while millennials with kids own just 14 per cent.”

Anyway, this article got my personal chat group talking and while I don't think it's wise to stay in a home past the age of 75, others disagreed with me.

Could it be that Canadians are staying in their home longer to use it as a piggy bank to help their children buy a starter home? I don't know, I find these trends highly specious and wonder what is the real root cause of staying in a home which requires a lot of maintenance and work past the age of 80.

I know the pandemic changed people's perceptions about living in a condo but that's over.

Truth is if you're in relatively good shape and are able to travel, you're much better off downsizing and living in a condo during your retirement years.

Maybe Canadians are living in their home longer but you really need to dig deeper to understand why and this paper and article don't do that.

Alright, it's only Monday and I've rambled on long enough.

Before I forget, please take the time to listen to former Governor of Bank of Canada and Special Advisor for Osler, Hoskin & Harcourt, Stephen Poloz share his thoughts on why DB plans are an effective way to save for retirement, how the power dynamic is shifting and why employers can benefit from DB plans:

Russell Evans: Why are defined benefit (DB) pensions such an efficient and effective way to save for retirement?

Stephen Poloz: There are massive gains in scale. First of all, the most important thing that happens is your longevity risk, the risk that you're going to live long. Sounds like a good risk, but if you're going to live long, longer than your financial situation allows, then you're in a pickle. You have no idea how long you'll live. So, you over save for that, and so, you underspend your whole life. The efficiencies of a pool of pension money, both across longevity risk and then, across market risk and the ability to compensate people in retirement because there's overlapping generations. That's a really important key, when there's no overlapping generation to take care of downside risk. All those things kind of melt away when you create a pension pool. Of course, if you run it by professionals, state of the art, then you're guarding against the typical risks and you're minimizing the costs around it.

Russell Evans: The shift away from defined benefit pension plans was not a good move for workers. And as Stephen says, the power dynamic at that point was still very much on the employer side.

Stephen Poloz: I think what happened is that the market power in that space between employers and employees shifted towards employers. So, what we have then is a whole generation like our baby boomers that are retiring. We have a gigantic retirement wave here in Canada. 15,000 people are retiring every month, all that human capital heading for the door. So, what happens is over the next 10 years, we're going to have more fallout and we're shifting to a relative shortage of workers. I'm talking much more profound than the shortage we experienced in the wake of the pandemic. I think what's going to happen then is the power is shifting back from the employer to the employee. And we're seeing early signs of companies being on the leading edge of that, for example, Walmart or Amazon.

Russell Evans: Why do you think employers should consider DB pension plans?

Stephen Poloz: I think the biggest and most practical risk that companies will face will be they won't be able to get the workers they need in order to complete their business plan. But I think for the next four or five years, it's become much more apparent as the retirement wave follows through. And in that situation, then firms are going to say, how do I manage that risk, will I pay a higher salary, or do I have a games room to attract people to the office and they can spend an hour of their day? Everybody's got their own ideas around this, but I think one of the most powerful ones will be to put more of the pie into the retirement window. People will find that that's a great place to work, because I know I can spend my whole paycheck if I want, because I know that 25 years from now or 35 years from now, when I'm done, I I've got it covered. I'll still be able to live a good lifestyle. I think this is going to be the most powerful weapon of all.

Steve spoke with CAAT Pension Plan's Russell Evans as part of their Contributors series. You can listen to the full episode here

Below, Stephen Poloz talks to Pamela Wallin on how the world can adapt to a riskier future (great discussion).

Forget The S&P 5,000 Milestone, Enjoy The Super Bowl!

Pension Pulse -

Samantha Subin and Yun Li of CNBC report the S&P 500 closes above 5,000 for first time ever, notches fifth straight winning week:

Stocks rose on Friday after December’s revised inflation reading 2 came in lower than first reported, and the S&P 500 closed above the 3 key 5,000 level as strong earnings and economic news chugged on.

The S&P 500 rose 0.57% to end at 5,026.61, while the Nasdaq Composite rallied 1.25% to close at 15,990.66. The Dow Jones Industrial Average slipped 54.64 points, or 0.14%, to settle at 38,671.69.

For 4 the week, the S&P added 1.4%, while the Nasdaq gained 2.3%. The Dow 5 finished flat. All three major averages notched their fifth straight 6 winning week and 14th positive week in 15.

“At the end of the day, 7 we’re still seeing whopping good news on an economic front, and the 8 market is reacting to that,” said Dana D’Auria, co-chief investment 9 officer at Envestnet. “The longer that story plays out, the more likely 10 it seems to the market that we actually are sticking a landing here.”

A 11 solid earnings season, easing inflation data and a resilient economy 12 have charged 2024′s market rally. It’s also propelled the S&P to 13 close above the 5,000 level after first touching the milestone during 14 Thursday’s session. The index first crossed 4,000 in April 2021.

“A close above this closely watched level will undoubtedly create 15 headlines and further feed fear of missing out (FOMO) emotions,” said 16 Adam Turnquist, chief technical strategist at LPL Financial. “Outside of 17 a potential sentiment boost, round numbers such as 5,000 often provide a 18 psychological area of support or resistance for the market.”

A revision lower 19 in December’s consumer price index also helped sentiment. The 20 government adjusted the figure to a 0.2% increase, down from a 0.3% 21 increase initially reported. Core inflation figures, excluding food and 22 energy, were the same. January’s CPI figures are due out next week.

Megacap technology stocks gained again on Friday, contributing to the S&P’s march above 5,000. Nvidia jumped 3.6%, and Alphabet added more than 2%. Cloudflare skyrocketed 19.5% on strong earnings, boosting the broader cloud sector in tandem. Semiconductor stocks also rose, with the VanEck Semiconductor ETF (SMH) edging up 2.2%.

The back half of the fourth-quarter earnings reporting period pressed on, with PepsiCo falling 3.6% on mixed results. Take-Two Interactive slumped 8.7% on a disappointing outlook, while Pinterest dropped 9.5% after issuing a weaker-than-expected forecast and missing revenue estimates.

Despite 23 these negative prints, earnings have so far proven more robust than 24 expected. A total of 332 S&P companies have reported results, with 25 about 81% of them reporting earnings above analyst expectations, 26 according to LSEG. That compares to a 67% beat rate in a typical quarter 27 since 1994.

There's no doubt that companies are reporting strong earnings and beating expectations.

To wit, just a few I tracked this week:


There were plenty of other winners and losers this week. IBD did a good weekly earnings roundup here.

When you see stocks popping 15, 20, 30% or more after earnings, you know there's still plenty of liquidity out there chasing stocks.

It's actually incredible because the macro backdrop remains poor and yet earnings keep forging ahead, for now.

And if earnings remain relatively strong, then companies will not shed labor to cut costs.

But all this will not last. We are already seeing signs of slowing and major tech companies are starting to shed jobs, Cisco being the latest one:

And as Francois Trahan reminds us, earnings still drive the show when it comes to labor markets and many companies are struggling:

Still, overall earnings remain robust which is why the S&P 500 closed over the 5,000 mark.

I don't get too excited with these milestones because as Martin Roberge of Canaccord Genuity reminds us in his latest weekly wrap-up, market risks rise considerably once stocks rise 5% above a milestone:

With the S&P 500 potentially closing above 5,000, our Chart of the Week shows the S&P 500 performance after the index cleared similar milestones at 1,000, 2,000, 3,000, and 4,000. One key takeaway from our chart is that, historically, a milestone tends to act as an anchor rather than as a springboard for stocks. We can see that more often than not, at one point, gains past the milestone are lost within the next year. In fact, each episode contains an interim peak-to-through drawdown of at least 12% (min. 12.4% in 2015 and max. 33.9% in 2020). These corrections, however, tend to occur in the second 6-month tranche of the 12-month window. Last, with the S&P 500 up ~23% Y/Y at the 5,000 milestone, the current episode may compare more to the 1,000 and 2,000 milestones, in our view, two episodes showing that market risk rises considerably if the S&P 500 jumps > 5% above the milestone. This would equate to SPX > 5,250. In all, though one-year returns after previous milestones are skewed positively, we believe investors must adopt a more tactical approach to markets and be wary of a 10%+ drawdown, which has been the norm rather than the exception.

What this tells me is we are cruising for a bruising and I'm expecting something will hit markets by the end of Q1 or Q2, and it's not going to be good.

And again, if you look closely at companies that reported, the S&P 5000 cannot mask the chaos beneath the calm:

The calm, however, is only surface deep. Nowhere is that more true than in shares of companies that have reported their fourth-quarter results. Yes, we know that earnings are supposed to cause stocks to have big moves. But the recent responses have been larger than normal: As of Thursday, the median S&P 500 stock has moved 3.6% after reporting, according to Dow Jones market data, nearly a point higher than the 2.7% median over the past 10 years.

These large swings are happening because the outlook for companies is far less certain than what it appears to be for the overall market. It also reflects the uncertainty many investors feel as they watch an expensive market—the S&P 500 trades at 20.4 times 12-month forward earnings—make its way higher while seeming to ignore the possibility that economic growth could decelerate, disinflation could peter out short of the Fed’s target, or that rates could remain right where they are.

“You’ve got investors on edge, so they’re reacting somewhat more intensely to these results,” says Sevens Report’s Tom Essaye.

For now, that volatility isn’t reflected in the Cboe Volatility Index, or VIX, which sits near 12.8, well below its 20-year average of 17.7 and down from 21.7 on Oct. 20, a level that seems too low given the S&P 500’s 21% gain since bottoming in October—and given the risks that are lurking. Those risks include high valuations, sticky inflation, a cautious Fed, and even a mild recession, according to Evercore ISI strategist Julian Emanuel, who thinks the next big move in the S&P 500 could be 10% to the downside. “Volatility is the baseline, not the outlier,” he writes.

And something investors should start preparing for now.

Indeed, the cost of protection hasn't been this low for a while and vol sellers are picking dimes in front of a steamroller, but they remain on the right side of that trade, for now.

As far as the S&P 500 reaching the 5,000 milestone, be prepared for anything here and no Nvidia will not save your portfolio when it hits the fan:

Lastly, my former boss now Canadian senator, Clement Gignac, posted this on LinkedIn:

Superbowl advertising indicator:

Still too much liquidity in the economy …or just the Taylor Swift effect?

The cost for a 30-second commercial during the Super Bowl has reached a record high this year: $7 million. Some advertisers are even paying $4 million for a pregame ad.

Since the first Super Bowl in 1967, the cost of a 30-second ad has gone up 185x, according to a research paper from BofA Securities that was published on Thursday. An ad back in 1967 cost $37,500.

A 185x jump since 1967, even considering the higher-than-normal recent inflation environment, is huge. If some Super Bowl-watching favorites kept pace with that type of inflation, chicken wings would cost $43 a pound today (23 cents a pound in 1967), and a six-pack of beer would be $340.

Non-football items like a gallon of gas would cost $61 today if they inflated as much as the price of a Super Bowl commercial, the S&P 500 index would be trading at 16,374, and the average price of a house would be $4.2 million.

Hum! Hard to believe that US economy needs Fed rate cuts before summer!

There's way too much money out there (average Super Bowl ticket sold on StubHub was $8,600, down from about $9,300 on Monday) and I too wonder if the Fed will cut rates in May or later if this silliness keeps going on (unless something breaks).

Alright, enjoy the Super Bowl, it will be a great game and I can't wait to see it and the Halftime show featuring Usher and his special guests (Beyonce? Taylor Swift?).

All I know is come Monday, either the Chiefs or 49ers will be the Super Bowl champions and while that's exciting, the S&P reaching 5,000 shouldn't excite you too much, start preparing for the worst.

Below, Jeremy Siegel, Wharton School professor, joins 'Closing Bell' to discuss the S&P 500 closing in on the 5,000 level and what it means for the markets.

Next, Mark Newton, Global Head of Technical Strategy at Fundstrat, and Stephanie Link, Chief Investment Strategist at Hightower, discuss the S&P breaking above the 5,000 mark for the first time ever.

Third, Katie Stockton, Fairlead Strategies founder and managing partner, joins 'Squawk Box' to discuss the latest market trends, how far the S&P 500 can go, consumer sentiment, the Fed's rate path outlook, and more.

Fourth, Doug Clinton, Deepwater Asset Management managing partner, joins 'Closing Bell' to discuss the sustainability of mega cap gains.

Fifth, Ed Clissold, Ned Davis Research chief U.S. strategist, joins 'Closing Bell' to discuss the economy and his Fed expectations.

Sixth, Komal Sri-Kumar, president of Sri-Kumar Global Strategies, joins 'Squawk Box' to discuss the latest market trends, the looming commercial real estate crisis, impact on the Fed's rate path outlook, and more.

Seventh, China's overreliance on real estate has sent its economy tumbling toward 2008-era financial conditions, Kyle Bass of Hayman Capital told CNBC on Tuesday.

Lastly, a little Usher to get you into the Super Bowl this weekend. Yeah!!

OTPP and Linden Capital Launch Platform to Revolutionize Clinical Research

Pension Pulse -

The Ontario Teachers’ Pension Plan announced that along with its partner, Linden Capital, it is launching an initiative focused on clinical research advancement:

Linden Capital Partners (Linden) and Ontario Teachers’ Pension Plan (Ontario Teachers’) are pleased to announce they are partnering on a transformative platform, led by Dr. John Potthoff, with the goal of revolutionizing the clinical research ecosystem. This strategic initiative is centered around investing in exceptional companies and deploying cutting-edge technology to foster seamless connections and collaborations among patients, research sites, pharmaceutical companies, and the broader clinical research community.

The platform will be led by Dr. John Potthoff, who is currently the Chairperson of Elligo Health Research. He has more than 30 years of leadership and operational experience in the life sciences and pharmaceutical services sectors. Dr. Potthoff has successfully scaled and grown businesses as a founder, entrepreneur, and CEO.

“We believe our collaboration is a potential game-changer for clinical research. We see a significant gap in the industry and believe this strategic alliance will drive meaningful change and opportunity,” said Dr. Potthoff. “By integrating leading companies and leveraging advanced technologies, we aim to create a cohesive and interconnected clinical research environment. Recognizing the unique needs of each therapeutic and scientific area, we aim to streamline processes, enhance efficiencies, and foster collaborations that benefit all stakeholders, especially patients.”

The initiative will be chaired by Ms. Margaret Keegan, an industry luminary with prior executive roles across all functions of clinical development at large pharmaceutical and CRO companies, including PPD, IQVIA and PRA Health Sciences. Ms. Keegan is the former Chair of the Board for CDISC (Clinical Data Interchange Standards Consortium), the clinical research data standards organization and currently serves as CEO of RQM+. "I am excited to collaborate with Dr. Potthoff, Linden, and Ontario Teachers’ to realize our shared vision," expressed Ms. Keegan. "We recognize the inefficiencies and shortcomings of clinical research services that impact patients, research sites, sponsors, and regulators, leading to delays in getting critical therapies to patients in need. Our commitment is to address these challenges head-on and catalyze positive change in our industry."

Vision for a Unified Clinical Research Ecosystem: The initiative is dedicated to building a more unified and efficient clinical research ecosystem. Through strategic M&A and the deployment of technology, it will seek to enhance collaboration across all aspects of clinical research, from patient engagement through regulatory submissions, ensuring that every phase of the research process is seamlessly connected and optimized.

About Linden Capital Partners:
Linden Capital Partners is a Chicago-based private equity firm focused exclusively on the healthcare industry. Founded in 2004, Linden is the country’s largest dedicated healthcare private equity firm by total capital raised. Linden’s strategy is based upon three elements: (i) healthcare specialization, (ii) integrated private equity and operating expertise, and (iii) its differentiated human capital program. Linden invests in middle market platforms in the medical products, specialty distribution, pharmaceutical, and services segments of healthcare. Since its founding, Linden has invested in over 40 healthcare companies encompassing over 325 total transactions. The firm has approximately $8 billion in regulatory assets under management. For more information, please visit www.lindenllc.com.

About Ontario Teachers’:

Ontario Teachers' Pension Plan Board is a global investor with net assets of $249.8 billion as at June 30, 2023. We invest in more than 50 countries in a broad array of assets including public and private equities, fixed income, credit, commodities, natural resources, infrastructure, real estate and venture growth to deliver retirement income for 336,000 working members and pensioners.

With offices in Toronto, London, Hong Kong, Singapore, Mumbai, San Francisco, New York, Dallas, and São Paolo, our more than 400 investment professionals bring deep expertise in a broad range of sectors and industries. We are a fully funded defined benefit pension plan and have earned an annual total-fund net return of 9.4% since the plan's founding in 1990. At Ontario Teachers', we don't just invest to make a return, we invest to shape a better future for the teachers we serve, the businesses we back, and the world we live in. For more information at www.otpp.com., visit otpp.com and follow us on LinkedIn.

There isn't much on this initiative but it's an interesting platform which will be headed by Dr. John Potthoff featured above.

I think the key passage in the press release was this by Ms. Keegan: "We recognize the inefficiencies and shortcomings of clinical research services that impact patients, research sites, sponsors, and regulators, leading to delays in getting critical therapies to patients in need. Our commitment is to address these challenges head-on and catalyze positive change in our industry."

Having participated in a few clinical trials looking at potential therapies for multiple sclerosis, I can tell you that trials are expensive, full of delays, bureaucratic nightmares for clinicians and pharmaceutical companies and definitely not efficient.

So, I'm not sure exactly how this new initiative will advance clinical research but I'm all for it, we desperately need to make the entire process a lot better for patients and clinicians.

The big theme in healthcare remains an aging population that needs better treatments for a plethora of illnesses. 

By teaming up with Linden Capital, an expert in healthcare industry, Teachers' is trying to innovate and capitalize on this new platform.

Below, three years ago, Elligo Health Research CEO, John Potthoff, Ph.D., sat down with Lisa Henderson, Editorial Director at Applied Clinical Trials for an interview discussing the effect of COVID-19 on the clinical trials landscape. 

In another interview, Dr. John Potthoff, Elligo Health Research, talks about changing the paradigm of clinical trial recruitment.

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