The National Pension Hub for Pension Knowledge and Research

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1 Global Risk Institute The National Pension Hub for Pension Knowledge and Research Alex LaPlante Managing Director, Global Risk Institute in Financial Services

2 Our Mission The Global Risk Institute (GRI) is a research institution that focuses on financial risk management across banking, pension, insurance and asset management. 2

3 About Us GRI was founded in 2011 as a result of an idea conceived by Mark Carney, Governor of the Bank of England, and Jim Flaherty, former Canadian Minister of Finance. There were sixteen founding financial institutions, with the Governments of Canada and Ontario, TD Group and Manulife acting as the core architects. We are a member services organization, with a current total of 32 members. Our three main goals: Improve risk management in the financial services sector Deepen and broaden our collective understanding of financial risk through research, education, and training Develop practical strategies for our members to better manage risk and return 3

How We Serve Our Members Monthly Communications Tailored Educational Programs A Full & Varied Roster of

Pulse, keeps members informed with our latest research findings, featured articles and upcoming engagement

One such program is our Board Risk Oversight and Insight Program, which is tailored specifically for board

including seminars, workshops and panel discussions, all of which call upon industry leaders and subject

innovation and best practice to better understand risk and opportunities facing the financial industry.

4 How We Serve Our Members Monthly Communications Tailored Educational Programs A Full & Varied Roster of Events & Speakers Fresh & Innovative Research The GRI Annual Conference 4 GRI s monthly newsletter, Risk Pulse, keeps members informed with our latest research findings, featured articles and upcoming engagement opportunities. GRI s educational programs build skill and capacity. One such program is our Board Risk Oversight and Insight Program, which is tailored specifically for board members and executives with board responsibilities GRI has a full roster of events throughout the year including seminars, workshops and panel discussions, all of which call upon industry leaders and subject matter experts across various sectors Our research team is tasked with identifying new and emerging innovation and best practice to better understand risk and opportunities facing the financial industry. GRI s Annual Conference is one that features top speakers and executive attendees from across North America. This year s speakers include Nobel Laureate Robert Engle. 4

5 National Pension Hub for Pension Knowledge and Research 5

6 National Pension Hub Mandate 1. Provide Innovative Solutions to Pension Challenges Cultivating a vast platform of pension knowledge will benefit government and industry partners and lead to innovative solutions to pension design, governance and investment challenges. 2. Create Sustainable Capacity for Academic Research Focused on Improving Retirement Savings Outcomes Creating a well funded, sustainable pipeline of academic research will bring rigor and contribute to expertise within the academic community. 3. Serves as an Unbiased Source for Policy Consultation Objective and reliable research offers policy makers and industry leaders access to fact based analysis and commentary, which encourages debate on pension policy and leads to consensus on critical issues 6

7 Members 7

8 Research Agenda 8

9 Research Agenda To guide research initiatives, the NPH members identified risk related trends and challenges that Canada faces. The current research focus of the NPH is on four key themes: 1. Plan Design/Plan Adequacy 2. Private Market Risk Assessment 3. Portfolio Construction from a Pension Perspective 4. Impact and Use of Leverage 9

10 Plan Design and Plan Adequacy How will factors including increased longevity, tightening government budgets, and changing labor market outcomes affect the pension industry? This research topics aims to: Improve understanding of the demographic, macroeconomic, and policy risk factors that drive uncertainties around future pension plan adequacy Determine how to design sustainable pension plans in the face of these trends Numerous possible research avenues including (but not limited to): The effects of demographic change on individual consumption and saving behavior The effects of demographic change on financial markets and macroeconomic outcomes How might different segments of the pension industry respond to these trends? 10

11 Private Market Risk Investments in privately traded assets like private equity, real estate, and infrastructure, and private debt have grown tremendously in recent decades Little is known about the risks and returns of these investments, the costs and benefits of holding them in a diversified portfolio, and whether they introduce moral hazard or agency issues This research topic aims to improve understanding of potential approaches to assessing the risk of private market assets 11

12 Portfolio Construction Pension fund managers face unique challenges in constructing their portfolios and managing their risk due to the long term nature of their liabilities and heterogeneity of their beneficiaries There is a broad range of potential topics under this theme including: Enhancements to pension portfolio construction Best practices for setting risk tolerances and how to optimally incorporate this into asset allocation decisions How should asset mix and risk tolerance change over a pension plan s life cycle? How should the sponsors profile and balance sheet health be reflected in the construction of the asset mix? 12

13 Leverage Pension funds rising leverage has both costs and benefits Reduces asset liability mismatches and improving the risk return trade off Increases exposure to macroeconomic and industry wide shocks This topic aims to investigate the facts and consequences of trends in pension plans use of leverage How Canadian pension plans leverage compares to other countries How leverage impacts portfolio construction and risk taking Whether there is an optimal leverage ratio 13

14 Research Projects 14

15 Valuation of Private Market Investments in Pension Fund Portfolios Project Leads: Mikhail Simutin and Redouane Elkamhi Institution: Rotman School of Management, University of Toronto Theme: Private Market Risk Objective: Develop a set of benchmark indices for pension funds private market investments, and use these indices to assess the risks of these investments and how they can be used to improve pension funds risk return trade offs 15

16 Valuation of Private Market Investments in Pension Fund Portfolios Motivation: Pension funds growing holdings of private market investments has raised numerous practical challenges: How should risks of such investments be assessed? What are relevant performance benchmarks? What are the expected returns? What are the diversification benefits? Existing research uses data on publicly traded assets to mimic private market investments, and may not capture these investments unique characteristics Methodology: Use anonymized data on pension funds private market investments to build a series of indices for broad classes of these investments (infrastructure, real estate, privately held companies, etc.) and evaluate historical performance Study the factor structure and conduct portfolio tests to estimate private market investments expected returns, risk characteristics (including liquidity risk), and diversification benefits 16

17 Population Aging: Impact on Equity Returns & Pension Plan Finances in Canada Project Lead: Stephen Bonnar and Douglas Andrews Institution: University of Waterloo Theme: Plan Design and Plan Adequacy Objective: Determine the impact of demographic change on asset returns, and assess the implications for Canadian pension plans 17

18 Population Aging: Impact on Equity Returns & Pension Plan Finances in Canada Motivation: How will changing population structures affect global and regional equity returns? What are the implications for Canadian DB pension plans risk profiles, and how should DB plans alter their asset allocations to better match their financial objectives? What are the proportionate effects on Canadian DC plans accumulations at different age and equity allocations? Methodology: Use historical data to estimate effects of demographic factors on equity returns and forecast distribution of future equity returns for various demographic projections Use return forecasts and demographic projections in stochastic pension projection model to estimate Canadian pension plans risk distributions (downside risk thresholds, average shortfall, economic capital) Test the sensitivity of the results to changes in asset allocation strategies 18

19 ICPM & the NPH 19

20 ICPM and the NPH ICPM A global network of pension organizations Networking: Brings together influential community of industry professionals Sharing Relevant Research: Provides funding for objective research that has practical relevance to its member pension plans. Highlights and shares relevant and timely research through the Global Research Scanning Service. NPH A center for knowledge & research in Canada Identify Industry Challenges: Members identify the risk related trends and challenges that the country faces Incubator for Research: NPH spurs academics to study relevant pension risk related topics by matching experts to specific topics. NPH targets an average of six projects per year, each with a lifespan of ~ two years. 20

21 How ICPM and the NPH work together ICPM Research Partners can collaborate with NPH to help execute the Hub s research mandate. International academics can apply for research funding from NPH if they are collaborating with an academic at a Canadian University Research produced through NPH can earn an international spotlight through ICPM s Global Research Scanning Service, as well as opportunities to present research to pension sector leaders at Discussion Forums. 21

22 Global Risk Institute The National Pension Hub for Pension Knowledge and Research Alex LaPlante Managing Director, Global Risk Institute in Financial Services

Considerations for Plan Sponsors: CUSTOM TARGET DATE STRATEGIES

PRICE PERSPECTIVE April 2015 Considerations for Plan Sponsors: CUSTOM TARGET DATE STRATEGIES In-depth analysis and insights to inform your decision making. EXECUTIVE SUMMARY Defined contribution plan sponsors