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© Copyright 2000 Rogers Media. The following article first appeared in the January 2000 edition of
BENEFITS CANADA magazine.
Industry
By Andrea Davis
To contribute, call (416) 596-5998, or FAX 596-5071
Ontario Teachers' buys
Cadillac Fairview
Ontario teachers are now some of the biggest players in real estate in North America following the purchase
of Cadillac Fairview Corporation by the Ontario Teachers' Pension Plan Board.
The board paid $34 for each of the outstanding shares of the Canadian real estate giant they did not
already own, for a total price of $2.3 billion.
"When you buy, you want to buy as low as possible but I think that was a reasonable price. When you look at
the cash the company is generating and the quality of the management, we're very comfortable at that
price," says Claude Lamoureux, president and chief executive officer of the Ontario Teachers' Pension Plan
Board in Toronto.
The acquisition of Cadillac Fairview, the first time Teachers' has acquired an entire company, will provide
a strategic hedge against inflation, says Lamoureux.
"From that standpoint it makes a lot of sense," he says.
The deal will add 102 properties to the 24 buildings Teachers' already holds in its real estate portfolio.
Some of the more notable properties in the portfolio include Toronto's Eaton Centre and TD Centre and
Vancouver's Pacific Centre.
According to Lamoureux, Teachers' will take a hands-off approach to managing Cadillac Fairview. It will
operate as a separate subsidiary of the fund's real estate portfolio. "It'll operate as a separate entity,
with its own board and own management," says Lamoureux.
The deal pushes Teachers' real estate holdings to 7% of its entire portfolio, up from 4% before the deal.
According to Lee Fullerton, a spokesperson for the board, the purchase brings Teachers' to where it wants
to be with respect to real estate.
"We feel it's a good fit for us because we've been underweighted in real estate," says Fullerton. "Our
target has been 5% to 15%. Since starting to develop the real estate portfolio in 1991 we've been adding
good quality real estate, but it's been slow to get up to the target area. This will finally bring us up to
the range we want to be in."--Jeff Sanford
Ontario to streamline pension law
New pension legislation introduced into the Ontario legislature contains provisions for streamlining
Ontario pension law and an announcement of the government's intention to harmonize investment rules.
The legislation, introduced by Finance Minister Ernie Eves, is tacked onto a bill that will allow
individuals facing a critical illness or severe financial ruin to access money in their locked-in
retirement accounts.
Individuals in either of these situations will be able to apply to the Financial Services Commission of
Ontario (FSCO) for permission to access some or all of their locked-in retirement money.
The changes to the Ontario Pension Benefits Act are designed to streamline pension regulation and are
mostly small, technical matters. But one regulation presents an opportunity for Eves to enter into
multi-jurisdictional agreements to allow a single piece of pension legislation to apply to a pension plan.
As well, pension fund administrators will be required to provide pension fund trustees with a schedule of
anticipated remittances for the next year. Trustees will also be obligated to report to the superintendent
of financial services non-delivery of the schedule and non-payment of the remittances.
The government also announced its intention to adopt the federal rules for investment. That will make life
easier for pension administrators who administer plans in several jurisdictions, as the four western
provinces have adopted the same legislation.
As well, because the federal rules are modern compared to the Ontario rules--which haven't changed in a
decade--Ontario fund managers will now have guidelines on the use of derivatives by pension funds.
The bill has just passed first reading. Exact details of what form the regulations will take will be posted
by FSCO early this year.--Jeff Sanford
Multi-employer plans
concern OSFI
A memo posted on the Ontario Superintendent of Financial Institutions (OSFI) Web site indicates that the
government is concerned about the problem of underfunded multi-employer pension plans.
The memo draws attention to eight of 26 multi-employer pension plans that have what OSFI calls a solvency
ratio of less than one with respect to their ability to fund their liabilities.
While the plans are not in immediate danger of insolvency, such a ratio means that if the plans were to be
wound up today they would fall short of covering all their liabilities.
But Mel Norton, a senior vice-president with Aon Consulting in Toronto, doesn't see any reason for concern.
He says the plans will likely survive, either through future returns or a cut in benefits.
"Some plans clearly don't have enough money. But in most cases the trustees of the plans are aware of it
and they know the action they might have to take," says Norton. "I would suggest time will solve the
problem."
For that reason, Norton thinks the memo is an overreaction on the part of OSFI.
"The industry has come to them and repeatedly said, 'this is not the problem you think it is,' " says
Norton. "It is an overreaction."
A spokesperson for OSFI would only say that the memo was an attempt by the regulator to be more open with
respect to its regulation process.--Jeff Sanford
Generic drug loses in court
A federal court judge has ruled that Health Canada was wrong in granting the generic drug Nu-enalapril a
Notice of Compliance (NoC). The NoC allowed Nu-enalapril to come to market as a generic version of the
brand name heart drug Vasotec, manufactured by Merck Frosst. The ruling means Nu-enalapril may have to come
off the shelves.
"From the moment Nu-enalapril was granted an NoC, Merck Frosst has recognized that the laws and regulations
that govern patented medicines were not applied," says André Marcheterre, president of Merck Frosst
Canada & Co.
The decision is a victory for the brand name drug makers who say that generic drugs undercut their ability
to fund drug research.
Generic drug manufacturers, meanwhile, are watching warily. The Notice of Compliance in this case had
allowed Nu-pharm, the maker of Nu-enalapril, to declare that its drug was not a generic of Vasotec but
another drug under patent.
Now that the NoC has been revoked, Merck Frosst may be able to sue Nu-pharm for patent infringement. A
statement from Merck Frosst confirmed the company is already undertaking such action.
"Despite this ruling, Merck Frosst has ongoing legal initiatives to ensure that not only the NoC for
Nu-enalapril is revoked, but Nu-enalapril is found to be patent-infringing," it says.--Jeff Sanford
New president defends TSE
In a bid to counter rhetoric that the Toronto Stock Exchange (TSE) is dead in the water, Barbara Stymiest,
president and chief executive officer of the TSE, took advantage of a recent speech to blast the exchange's
critics.
"I'm here to explode a myth," she said in a speech at the C.D. Howe Institute in Toronto. "The myth that
the TSE is somehow a fading and increasingly irrelevant institution."
She pointed out that the TSE has hit a new all-time high recently and that its trading business is growing
by a healthy 20% to 30% a year.
"These are the facts," said Stymiest. "And Canadians need to hear them because much of what they hear and
read simply doesn't match up to the reality of what the TSE is all about."
On the subject of alternative trading systems, Stymiest made sure the audience understood that the TSE was
one of the first major exchanges to go electronic.
"We were the first exchange in North America to adopt decimal pricing. We were the first to vote for
demutualization and we were the first major exchange in North America to close our trading floor and
replace it with fully electronic trading," she said.
As for the needs of institutional investors, Stymiest noted they are demanding better liquidity and more
anonymity. She said that the TSE is building a new call market, slated to begin this year, that should
provide more anonymity.
"I have the opportunity to provide some anonymity for them and a different way of trading through the TSE's
fully electronic call market, which we are in the process of building," said Stymiest.--Jeff Sanford
Economist takes
long view
As prices of tech stocks continue to rise, pension fund managers and members alike who feel that these
stocks are overvalued may be feeling a little anxious.
But there's no need to worry, says Sherry Cooper, chief economist and vice-president of Nesbitt Burns in
Toronto. The advance has just begun in her view.
According to Cooper, we're only at the beginning of an extended upswing in economic activity that will
likely last into the 2020s.
Her prediction is based on the long wave theory, the view that underneath the short ups and downs of the
markets operates longer waves.
Over the past few hundred years these waves have ebbed and flowed in sync with the development and
implementation of major technological developments.
The last big wave, from 1954 to 1973 ushered in the prosperity of the post-war years and was spurred on by
TV, automobiles and electronics. The rocky economic conditions of the '70s and '80s represented the down
side of that wave.
This new wave, which we're just ascending, is the result of networked computers, massive advances in
storage capacity and huge leaps in processor power.
This second wave will be spurred on by the application of these advances to the life sciences, which will
see an explosion in the applications of biotechnology.
"The new economy is the digital economy," says Cooper. "It's my view that this sector will outpace the
growth of the other sectors."--Jeff Sanford
Healthy workplaces awarded
Three Canadian companies have been recognized by the National Quality Institute and Health Canada for
having healthy workplaces.
Recipients of the first-ever Healthy Workplace Award include Kanata, Ont.-based health and life services
company MDS Nordion and telecommunications company Telus in Burnaby, B.C. Toronto-based electronics
manufacturer Celestica International Inc. won a certificate of merit.
Eleven submissions were received from companies across Canada. Entrants were assessed by a panel of
wellness experts and finalists were submitted to on-site visits by judges.
"They had to score relatively high on each one of the drivers, including leadership, planning, people focus
and process management," says Cheryl McAnerin, director of events at the National Quality Institute in
Toronto.
Winners were honoured at a gala event in Toronto in October.
CORRECTION
There are four corrections to report from November's Top 40 Money Managers of 1999 study.
On page 32, pension assets for Standard Life Portfolio Management Ltd., as of June 30, 1999, should be
$3,146.3 million. This ranks the firm 12th on the fastest growing in percentage terms chart (63.1%
variance) and seventh on the fastest growing in dollar terms chart (up $1,216.9 million). Both charts are
on page 36.
Also on page 36, the chart entitled "The fastest growing," reports that "Acuity Investment Management is
the only firm to make the top 10 fastest growing in percentage terms list in 1998 and 1999." In fact, Bank
of Ireland Asset Management Limited made the top 10 both years as well.
Finally, on page 36, the Caisse de dépôt et placement du Québec was inadvertently left off
the fastest growing in dollar terms list. The Caisse should have been number one, with an increase in
pension assets of $7,280.7 million.
On page 48, the chart entitled "The Top 20 total scene" incorrectly refers to "Total Pension Assets." Those
figures represent total assets under management by the top 20 firms, not just pension assets.
NEWS ARCHIVE
Here's a selection of news headlines that appeared on the benefits canada Web site last month. To view the
full items, visit our news archive at www.benefitscanada.com/archive.html
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Record number of smokers to quit this New Year's
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Pension funds continue to drop Talisman
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Caisse to make music
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Teachers' files dissent
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M & A patterns: Canada good buy
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Empire and Paul Revere reach deal
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What really motivates plan members
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News
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