Monday, October 17, 2016

Transcription

1 ICPM Discussion Forum October 2016 Dates: October th 2016 Location: Oval Room, Ritz Carlton, 1228 Rue Sherbrooke O, Montreal, QC, Canada Monday, October 17, :00-8:30 Registration Continental breakfast available 8:30-8:45 Welcome and Opening Remarks Barbara Zvan, ICPM Board Chair Onno Steenbeek / Alan White, ICPM Research Committee Co-Chairs Topic: Communication with Members 8:45-10:30 Best Practice Examples of Communication with Pension Fund Participants Speakers: Matthew Blakstad, Head of Member Proposition, NEST (UK), Mel Duffield, Head of Product Strategy and Liaison, USS (UK), Neil Murphy, Director, Member Communications, Ontario Teachers Pension Plan (CA) and Britt Brandum, Head of Member Services, PKA (DK) Moderators: Keith Ambachtsheer, ICPM Director Emeritus and Barbara Zvan, ICPM Board Chair Session Objective: In this session we hear the latest and best practice efforts of three ICPM research partners around communication and engagement with pension plan participants. Blakstad will first describe NEST s member population that tends to be younger, less affluent and less financially literate than the traditional market for private pensions in the UK. NEST has led a series of research studies and consultations to help understand their members needs and preferences. Blakstad will explain how NEST s evidence-based method has led to a fresh approach to member engagement. He will show how NEST has combined behavioral theory with clear communications, share evidence about the behaviors of NEST members once in the scheme, and outline NEST s future research plans. Duffield will show how USS has moved from a DB pension plan to a hybrid pension plan, within which all members have the opportunity to save into a new DC section USS Investment Builder. She will describe the journey they have been on in the last 12 months with their 150,000 members in the higher education sector from their research with members to inform the DC investment design; to launching a new communications and engagement strategy; to seeing the impact of this design and strategy on member actions and behaviors. She will explain how their members are reacting to their investment choices and opportunities to save more, as USS Investment Builder launches on 1 October this year. 1

2 Murphy will discuss how the Ontario Teachers Pension Plan is using innovative communication design to engage with plan members within a defined benefit structure. Particular examples will focus on the role of digital technology (such as mobile apps, social media and web products) to illustrate how it is enriching beneficiary education and conversion. Brandum will talk about how PKA, through its member communication and engagement, creates value for both members, and the pension fund. The ultimate goal for PKA is to create a high and robust pension for the members. One of the most important tools to achieve this is engagement with members. He will link this to the overall strategy for PKA and show some cases including their digital universe to illustrate how they achieve these goals. Session Format: Four presentations of 15 minutes followed by a plenary Q&A in which the moderators will encourage members in the audience to provide feedback and to come up with other examples of best practice member communication Networking Break 11:00-12:30 Conducting Experiments and Surveys with Members: Recent Academic Insights Speakers: Thomas Post, Assistant Professor of Finance, Maastricht University School of Business and Economics (NL), Onno Steenbeek, Director Asset Liability Management, APG and Professor of Finance, Erasmus University Rotterdam (NL). Moderators: Keith Ambachtsheer, ICPM Director Emeritus, and Alan White, ICPM Research Committee Co-Chair Session Objective: Post will discuss a large scale Netspar project in which representatives of ICPM Research Partner NEST are involved as well. One of the sub-projects is related to investigating member communication. The research team use text mining tools covering a broad range of methods, from simple ones (key word search) to more advanced ones including, for example, extraction of emotions and affect ratings, and topic models. Post will present first results of text mining different sources of data (survey-based and ) from pension funds. He will focus on extracting topics and emotions from participant-written texts. Understanding participants emotions can be an important ingredient in improving, for example, communication with participants or user-interfaces and may ultimately increase participant engagement. Steenbeek will present results of a broad research initiative at APG focused on the design and communication of choice options in collective pension funds. The attached paper presents the effects of framing and default settings in annuity demand after conducting a survey-based experiment with over 3,000 members of a Dutch occupational pension plan. The participants were asked to allocate their real projected pension accrual between a life annuity and a partial lump sum. The research team presents strong evidence for framing and default setting effects in annuity demand. Session Format: Two presentations of 25 minutes followed by a plenary Q&A. 2

3 12:30-13:15 Network Lunch 13:15-14:15 Transfer to La Caisse de dépôt et placement du Québec 1000 place Jean-Paul Riopelle, Upon arrival at La Caisse, go up the escalator and proceed to sign in at security. When signed in, take the elevator to the 11th floor. Once on the 11th floor, attendees will not be able to return to ground level unless accompanied by personnel with granted access. Personnel with access will be available at any time. Topic: Infrastructure Investments 14:15-14:30 14:30-15:15 La Caisse de dépôt et placement du Québec Welcome Remarks by Bernard Morency, Special Advisor, CDPQ Infrastructure Investments at CDPQ Speaker: Macky Tall, Executive Vice-President, Infrastructure, and President and Chief Executive Officer, CDPQ Infra (CA). Interview by: Sudhir Rajkumar, ICPM Board Vice-Chair Session Objective: Tall will discuss the new infrastructure model of CDPQ as operated by CDPQ Infra. He will explain why CDPQ opted for a subsidiary model at this stage and give some insight on the first experience in such a setting. Moreover, he will discuss strategic and operational challenges of this model. Session Format: A dynamic interview followed by a plenary Q&A. Topic: Performance Evaluation 15:15-16:30 Rethinking Performance Evaluation Speaker: Campbell Harvey, Professor of Finance, Duke University, Fuqua School of Business (USA). Moderators: Keith Ambachtsheer, ICPM Director Emeritus and Onno Steenbeek, ICPM Research Committee Co-Chair Session Objective: Plan managers face a dilemma: they need to consider a manager s past risk-adjusted performance to determine allocations yet they know that this past information has almost no information for predicting future performance. Harvey argues that the poor predictive ability is due to a flaw in the traditional performance measures which focus on fund-by-fund evaluation and include all of the noise in the alpha estimate. He introduces a new method called Noise Reduced Alpha that harvests information both from the time-series of a manager s performance as well as the manager s peer group. Results suggest striking improvements in the ability to forecast next period s cross-section of riskadjusted performance. 3

4 Session Format: Presentation of minutes followed by a plenary Q&A. 16:30-17:30 Networking Opportunity and Leisure Time: For those interested, a guided tour of La Caisse s impressive art collection will be offered. Space is limited. 17:30-18:00 Pre-Dinner Interview: Building Sustainable Value Speaker: Michael Sabia, President and Chief Executive Officer, La Caisse de dépôt et placement du Québec (CA). Interview and moderation by: Keith Ambachtsheer, ICPM Director Emeritus Session Objective: To be determined 18:00 onward Reception and Dinner at La Caisse Tuesday, October 18, :45-8:30 Registration Desk Open Continental breakfast available Topic: Household Finance Puzzles 8:30-8:45 Opening Remarks and Introduction of the Day Sudhir Rajkumar, ICPM Board Vice-Chair 8:45-10:15 You Only Live Once : Mortality Beliefs and Household Finance Puzzles Speakers: Rawley Heimer, Research Economist, Federal Reserve Bank of Cleveland, Michael Preisel, Vice President, Danish Labour Market Supplementary Pension (ATP) Moderators: Keith Ambachtsheer, ICPM Director Emeritus and Bernard Morency, ICPM Board Member Session Objective: Heimer will show that subjective mortality beliefs affect pre and postretirement consumption and savings decisions, as well as portfolio allocation. New survey evidence shows that individuals overestimate their mortality at short horizons and survival rate at long horizons. For example, a 28-year-old male with a 99.4% chance of surviving beyond 5 years believes he will do so with 92.8% probability. A 68-year-Dold with a 71.4% probability of living to 78 believes he has an 82.4% chance of living that long. The formation of these beliefs across age cohorts can be attributed to overweighting salient causes-ofdeath. This bias matters empirically: Survival expectations correlate with heterogeneity in financial education and investment behavior. Preisel will discuss the paper from a practitioner's perspective. 4

5 Session Format: Presentation of minutes followed by an ICPM Research partner discussant 15 minutes, and a plenary Q&A. 10:15-10:45 Network Break 10:45-12:00 Offering versus Choice in Retirement Plans Speakers: David Richardson, Senior Economist, TIAA-CREF Institute. Ciarán Barr, Investment Director, Railways Pension Trustee Company Moderators: Keith Ambachtsheer, ICPM Director Emeritus and Bernard Morency, ICPM Board Member Session Objective: In the past 15 years, the number of investment options typically available in a defined contribution retirement plan has increased. And over the past 10 years, life-cycle funds have become a common option and popular choice for use as a single fund-of funds. Using a large cross section of over 600,000 participants at 98 large institutions, we study how participants in the TIAA-CREF system allocate their contributions within this new investment menu environment. We find that participants typically invest in a handful of funds. Younger participants typically allocate more to equity than older workers and men allocate more to equity than women. There are significant menu effects. When more funds are available, participants invest in more funds. Barr will discuss the paper from a practitioner's perspective. Session Format: Richardson will present his paper in 30 minutes followed by ICPM Research partner discussant, Ciaran Barr for 15 minutes and a plenary Q&A. 12:00-13:00 Network Lunch Topic: Shareholder Engagement 13:00-15:00 Do Long Term Investors Improve Corporate Decision Making? Session Speakers: Ambrus Kecskés, Associate Professor, Schulich School of Business at York University (CA), Alexander Dyck, Professor of Business and Finance Economics, Rotman School of Management (CA). Moderators: Keith Ambachtsheer, ICPM Director Emeritus and Alan White, ICPM Research Committee Co-Chair Session Objective: Kecskés et al. study the effect of investor horizons on a comprehensive set of corporate decisions. Long-term investors have the means and motive to monitor corporate managers, which generates corporate decisions that are consistent with shareholder value maximization. The authors find that long-term investors strengthen corporate governance and restrain managerial misbehaviors such as earnings management and financial fraud. They discourage a range of investment and financing activities but encourage payouts. Shareholders benefit through higher stock returns, higher profitability 5

6 that is not fully anticipated by the market, and lower risk. The Kecskés et al. study received a 2016 ICPM Research Award. Dyck et al. (2015) examine whether institutional investors affect a firm s commitment to corporate social responsibility (CSR) for a large sample of firms from 41 countries over the period 2004 through They focus on environmental and social aspects of CSR, while controlling for firms governance levels. They find that institutional ownership is positively associated with firm-level environmental and social commitments. Further, the color of money matters. Domestic institutional investors and non-u.s. foreign investors account for these positive associations, while U.S. institutional investors holdings are not related to environmental and social scores. Similarly, higher scores are associated with long-term investors such as pension funds but not with hedge funds. Evidence from a quasi-natural experiment shows that institutional ownership causes improvements in environmental scores. Overall, their results suggest that institutional investors, in aggregate, use their ownership stakes to promote good CSR practices around the world. Session Format: Two presentations of 20 minutes followed by a table discussion of 30 minutes and a plenary Q&A / Report Back. 15:00-15:30 Network Break 15:30-17:00 Best Practices on Responsible Investment by Institutional Investors Speakers: Michelle Greene, Long Term Stock Exchange Initiative (USA) and Kris Douma, Director of Investment Practice and Reporting, UNPRI (UK). Moderators: Keith Ambachtsheer, ICPM Director Emeritus and David Russell, ICPM Board Member Session Objective: This session is intended to show recent innovative activities in the fields of responsible investing and shareholder engagement. Greene will introduce a new initiative on setting up a long term stock exchange. Douma will share the experience of UNPRI (TBD). Session Format: two presentations of minutes followed by a plenary Q&A. 17:00-17:15 A Collection of Further Thoughts and Suggestions for Future Action Keith Ambachtsheer will ask the audience what they experienced as thought provoking and what will impact their actions going forward. 17:15-18:00 Personal Break: All participants are invited to join us at the conclusion of today s program for cocktails and dinner. Hotel guests are encouraged to drop their conference materials at the hotel and change (if desired). 18:00 Onward Cocktails/Stand-Up Dinner: Ritz Carlton Hotel, Gold & Grey Room Wednesday, October 19,

7 7:45-8:30 Registration Desk Open Continental breakfast available Topic: Private Investments 8:30-8:45 Opening Remarks and Introduction of the Day Keith Ambachtsheer, Director Emeritus, Rotman ICPM 8:45-10:45 Evidence on Fees and Performance of Private Investments Speakers: Ludovic Phalippou, Associate Professor of Finance, Saïd Business School, Oxford University (UK) and Aleksandar Andonov, Assistant Professor of Finance, Erasmus University Rotterdam (NL). Moderators: Keith Ambachtsheer, ICPM Director Emeritus and Sarah Owen, ICPM Board Member Session Objective: In this session the results of two ICPM Awarded Research Papers will be discussed. Phalippou et al. show that when private equity firms sponsor a takeover, they may charge fees to the target company while some of the firm s partners sit on the company s board of directors. In most cases a Management Services Agreement (MSA) is signed between the private equity company and the Executive team. MSAs list various portfolio company fees and the services they are associated with. In the wake of the global financial crisis, such potential for conflicts of interest have become a public policy focus. Andonov et al. examine the governance of U.S. public pension funds and its relationship to investments in private equity. Representation on pension fund boards by members who were appointed by a state official or sit on the board by virtue of their government position (ex officio) often determined by statute decades past is strongly and negatively related to the performance of private equity investments made by the fund. This underperformance is driven both by investment category allocation and by poor selection of managers within category. Lack of financial experience contributes to poor performance by boards with high fractions of other categories of board members, but does not explain the underperformance of boards heavily populated by state officials. Political contributions from the finance industry to elected state officials on pension fund boards are strongly and negatively related to performance, but do not fully explain the performance differential. Session Format: Two presentations of 25 minutes followed by a 30-minute table discussion and a plenary Q&A. 10:45-11:15 Network Break 7

8 Topic: Long Horizon Investing 11:15-12:15 Asset Owners and the Institutional Challenge of Long Horizon Investing Speaker: Bradley Jones, Financial sector advisor in the Monetary and Capital Markets Department, International Monetary Fund (IMF), (USA). Moderators: Keith Ambachtsheer, ICPM Director Emeritus and Michelle Ostermann, Senior Vice President, Research and Risk Measurement, bcimc Session Objective: Though conceptually simple, the principles of long horizon investing can prove intensely challenging to put into practice. Long-term asset owners are endowed with a competitive edge, but a confluence of institutional frictions can undermine efforts to convert the aspiration of long horizon investing into reality. As Jones suggests, there is no silver bullet solution. Institutionalizing aspects of the investment process to preserve this natural edge requires a multi-faceted approach, reflecting the breadth of issues at hand. The following elements could be most helpful: more supportive institutional design and governance practices; widely harvesting structural factor-based return sources that other investors (whether for behavioral or institutional reasons) often pay a premium to avoid; paying due attention to the myriad pitfalls associated with the illiquidity premium in private market assets; strengthening the alignment of interests between asset owners and managers; and accounting for path dependency considerations when assessing options to minimize funding shortfall risk. Session Format: 30 minute presentation followed by a plenary Q&A Discussion Forum Closing Remarks by Sudhir Rajkumar, ICPM Board Vice- Chair 12:15-13:00 Network Lunch A light lunch is available for those able to stay. 8