In four sessions held on April 14 and 15, 2021, CFA Society Toronto’s Annual Spring Pension Conference delivered thought leadership and insights from experts with decades of experience in the institutional asset management arena.

 “The Annual Spring Pension Conference is our flagship event and is only made possible by significant volunteer contributions. We wanted to capture a forward-looking recovery theme in ‘Building Back Better,’ which tied the four panels together excellently. I was amazed by the calibre and diversity of our esteemed speakers who graciously shared their perspectives on risk and opportunity. The bar has been raised for next year’s pension conference!”

                             Aaron Vale, Chair, Institutional Asset Management Committee, CFA Society Toronto

 Session 1: A Fireside Chat with Keith Ambachtsheer: Future-Proofing Pensions 

• Moderator: Heather Cooke, CFA, Chief Investment Officer, The Audra Group – Affiliate of The Woodbridge Company Limited
• Keith Ambachtsheer, President, KPA Advisory Services

In the keynote session, Heather Cooke chaired a lively discussion with Keith Ambachtsheer, internationally renowned expert and advisor in pension funds and institutional investing. Ambachtsheer laid out the history and framework of the Canadian model for pension fund management from its roots in 1976 to present day. The Canadian model is cited internationally as a model to be emulated, and Ambachtsheer described its three key attributes as “a clear mission, a strong independent governance function, and the ability to attract and retain the requisite talent to be successful.” A performance analysis of eight Canadian funds over the period of 2005 to 2016 confirms the efficacy of the model.

Key future challenges for pensions include:

– The relevance of solvency versus going concern calculations
– Reluctance of pension committees to embrace innovative thinking
– The role of fixed income in asset allocation policy
– Limited accessibility of alternative assets to smaller pension funds

Solutions to these challenges may include implementing dynamic asset allocation policies and bringing the benefits of collective mechanisms to corporate pension plans, possibly through further pooling to create scale. It was also suggested that Canada look to other countries for creative ideas, such as Australia’s accumulation/decumulation model and longevity insurance proposals.

The discussion also turned to trends in increasing plan member engagement in shaping investment policy, particularly with the rise of environmental, social, and governance (ESG) investing. With the incorporation of ESG requirements into fund investment policy, there is now a need for a third-party verification process to manage the risk of greenwashing.

Session 2: Fireside CRO Chat: Navigating Risk in a World of Unknowns

• Moderator: Joyce Chen, CFA, Director, Investment Risk Research, Investment Management Corporation of Ontario
• Sara M. Alvarado, CFA, Co-Chair, World Economic Forum’s Infrastructure 4.0 Initiative and former Head of Risk, Canada Infrastructure Bank
• Sonia Baxendale, President & CEO, Global Risk Institute
• Jean-Francois (JF) Bureau, Chief Financial & Risk Officer, PSP Investments
• Saskia Goedhart, Chief Risk Officer, Healthcare of Ontario Pension Plan (HOOPP)

This panel of chief risk officers (CROs) tackled emerging investment risks and potential implications for pension portfolio management. Key among the macroeconomic risks highlighted were:

– Lower expected investment returns
– Low bond yields
– Inflation
– Uncertainty surrounding central bank policy, business and customer resilience post-stimulus, and the resulting costs and funding of such measures

The panel agreed that plan sponsors are seeking diversification and innovation in search of yield and risk-adjusted returns. This is leading to creativity and product innovation by asset managers seeking to satisfy those needs, such as inflation-linked long-term assets and alternative investments.

Panellists were asked to provide a practitioner’s view on how to navigate key risks such as liquidity, f/x hedging, and derivative exposure in a portfolio. Dynamic asset allocation, sufficient liquidity, and derivative usage were mentioned as tools for effectively turning such risks into opportunities, provided sufficient risk control systems are in place.

Concerning climate risk, Sara Alvarado commented that an expected oscillation in the market between climate change and technology over the next five to ten years may result in “a fundamental change in the ways we do business, analyze investments, [and] do asset allocation and risk management.” She added that “understanding climate change and technology dynamics will be a key differentiator in managing successful portfolios.” Further, Sonia Baxendale stressed the important role of strategic boards in deal sourcing and execution process concerning ESG and climate risk for real assets like real estate and infrastructure, saying, “Boards and business leaders must have a clear vision for how they are going to be competitive in this low-carbon future and [in] a future with increasing weather risk.”

As the discussion turned to managing cybersecurity risk at the enterprise level, the panel agreed that this is one of the top three risks they are facing, which has been accelerated by the COVID-19 pandemic and the work-from-home phenomenon. Interactions with third parties present a key point-of-entry risk that necessitates greater control over access to systems and cloud applications. The rapid advancement of new technologies has also accelerated the introduction of cybersecurity risks that companies and sponsors are not yet prepared to handle. It was suggested that asset managers must do more to consider these risks in their due diligence process. Increased education at the board level is also needed.

PANEL INSIGHTS: GREATEST RISKS FOR 2021

– Asset pricing and high valuations

– The development of digital cash and its use

– Macroeconomic risk as the economy reopens

– Climate risk

Session 3: C-Suite Insight on Today’s Investment Environment

• Moderator: Marlene Puffer, CFA, President & CEO, CN Investment Division
• Fiona Frick, CEO, Unigestion
• Donna Mathieu, Vice President, Chief Investment Officer, & Treasurer, NAV CANADA
• Rachel Volynsky, Chief Investment Officer, Delegated Solutions, Mercer

Marlene Puffer led the conversation with three C-suite executives concerning the impact of the COVID-19 pandemic on their firms and investment strategies. The panel agreed that inflation risk, interest rate volatility, rising real yields, future monetary policy, and the possible impacts of tapering were the key risks and opportunities currently under consideration. A lively discussion ensued concerning investment strategy responses to these risks, including inflation-linked assets, commodities, emerging markets, and real estate. Real estate has undergone significant disruption that has been accelerated by the pandemic, creating new risks and opportunities in the sector.

The panel was asked to comment on other trending investment strategies, including cryptocurrency, special-purpose acquisition companies (SPACs), and ESG investing. There is increased institutional interest in cryptocurrency, particularly among family offices, as a diversification tool or hedge against inflation. Traditional institutions remain more cautious as concerns remain regarding its volatility and environmental impact. All panellists agreed that it is vital to understand the workings of this emerging asset, that more study is needed, and that outside expertise in this sector is essential for institutions looking to participate.

In the SPAC “lightening round,” it was noted that SPACs play a valuable role in innovation and the private equity space and that they have some appealing characteristics. However, this appears to be a late-cycle bubble phenomenon and has not yet been given serious consideration by most institutions.

Institutions are, however, dedicating considerable resources in the ESG space. Puffer shared that the CN plan was an early ESG leader in disclosures and behaviour. She explained that their internal bottom-up equity investment process gives them more control over their exposures than many peer plans have. This year, CN has undertaken to map its carbon footprint. Rachel Volynsky shared that ESG is also part of the five core beliefs at Mercer, where they partner with managers committed to measuring, engaging in, and moving the needle towards quantifiable ESG goals. Fiona Frick provided a European perspective, acknowledging that ESG investing is further developed there than elsewhere, as it has journeyed from exclusion to engagement to impact. All agreed that the degree and timing of ESG integration into a portfolio strategy depends on the client and that considerable client education is still needed and is underway, particularly regarding balancing fiduciary duty and performance.

In addition to climate change, the panel also discussed diversity. Puffer pointed to evidence that more diverse teams have better results but that the pace of change in this area has been extremely slow. Donna Mathieu shared that NAV CANADA is accelerating progress by encouraging diverse boards, asking asset managers during the hiring process how they address diversity, maintaining a flat internal structure, and making sure everyone can contribute. Volynsky added that it is important to have recruiting targets and necessary to search for talent in new places other than major universities.

In closing, each panellist emphasized their key priorities for the coming year, including:

• Communicating the need for scale, innovation, simplification, and education
• Conducting a deep dive into portfolio construction in view of technological change and innovation
• Showing that ESG is not just about risk management but also about opportunity in innovation

Session 4: Private Markets: Current and Future Impacts from COVID-19

• Moderator: Leo Kolivakis, Publisher, Pension Pulse
• Tanya Carmichael, Managing Director & Head of Global Funds, Ontario Teachers’ Pension Plan
• Andrew Garrett, Senior Principal, Real Estate Portfolio, IMCO
• Anish Majmudar, CFA, Managing Director, Head of Real Assets, M&G plc

In the conference’s closing session, the panel focused on the disruption caused by the COVID-19 pandemic on private market asset classes, including infrastructure, real estate, and private equity. The pandemic necessitated a quick and thorough review of existing portfolio investments for any viability or performance impacts. All panellists were pleased to share that their organizations could return to normal operations sooner than expected thanks to prudent sector weightings and ample portfolio liquidity.

Andrew Garrett shared that IMCO was able to buy and sell real estate over the preceding twelve months, focusing on interventions that enhanced the value of the assets, such as health and safety protocols and technology in the commercial and retail space. Anish Majmudar discussed two key infrastructure trends that were accelerated by the pandemic: digitalization and decarbonization. He explained that the building of high-speed internet and 5G networks are benefiting from this trend, resulting in a confluence of technology and infrastructure and the creation of many potential investment opportunities over the next ten years. Tanya Carmichael emphasized the importance of quality strategic co-investing partnerships for the Ontario Teachers’ plan and the resilience these relationships provided during the pandemic.

Turning to a discussion of the growing impact of ESG, Majmudar pointed out that private equity firms are in the privileged position of being able to facilitate change through active engagement via their asset managers and impact investments. Garrett shared that ESG implementation is a journey with unique challenges in the real estate sector, but some successful efforts to date at IMCO include impact investments in affordable housing and the creation of a diversity and inclusion council. Carmichael remarked that while Ontario Teachers’ was an early leader in the responsible investing space, the bar continues to be raised, and ESG must now be considered from both a compliance and opportunity perspective. Investments today are chosen not only for return potential but also for impact potential that is complementary to the goals of the organization.

In closing, the panel agreed that it is an exciting time to be invested in alternative assets and that the pandemic has both accelerated existing trends and created new, disruptive opportunities. They concluded by discussing the skills required to pursue a career in alternative asset management, which include intellectual curiosity, a diverse career background, soft skills, the ability to balance work and private life, and attainment of the CFA charter.