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© Copyright 2000 Rogers Media. The following article first appeared in the April 2001 edition of
BENEFITS CANADA magazine.
Industry
Outright sale of RT Capital expected
A straightforward sale of RT Capital Management Inc. is more likely than a partnership deal between its
parent company Royal Bank and an international management firm, says RT Capital's president and chairman,
Michael Wilson. "We've seen two outright sales so far with Perigee and Bissett," says Wilson. "That's
probably the most likely [scenario for RT Capital]. But I don't rule out the other as a possibility."
Royal Bank of Canada announced last month that it may sell its institutional investment arm. The decision
is "in response to the evolving need of its pension clients for high quality, U.S. and global investment
products, and recent increases in foreign content limits for pension funds. As a result of these changes,
plan sponsors and other institutional investors will increasingly require a global perspective," reads a
statement from the bank.
Last year, the federal government announced it would raise the foreign content limits for pension funds and
registered retirement savings plans to 25% in 2000, up from 20%. The limit was raised again this year to
30%.
"[Consolidation] has been going on for quite some time. This is a continuation of what we've seen over the
last few years," says Barry McInerney, an investment consultant with William M. Mercer Ltd. in Toronto.
"It's time for Canadian investment managers to be proactive. That doesn't mean they all sell out, it just
means make a decision and make it soon. Either get the global platform through an alliance or being
acquired, build it or refocus your business lines in terms of what products you want to make available to
the Canadian investor."
Harry Gibbs, vice-president of investments at the Workplace Safety & Insurance Board Employees Pension
Plan in Toronto says the move to sell the firm makes sense.
"[It's] an important but shrinking franchise," he says. "Clients are demanding more of a foreign presence
and they need that infrastructure. It's difficult to build foreign investment management criteria in-house
and awfully expensive to buy it."
Greg Hurst, manager of the pension division at Heath Lambert Benefits Consulting in Vancouver, says that
because of the size of RT Capital's assets under management (the firm manages $20.8 billion in pension
assets as of Dec. 31, 2000, according to BENEFITS CANADA's Top 40 Money Managers report), he expects
a foreign firm--either one that already has a Canadian presence, or a new player--to be interested in
buying RT Capital. "I'd be surprised if it was another Canadian asset manager," he says.
Royal Bank has hired U.S.-based investment bank Putnam Lovell Securities Inc. to manage the deal.
Stock option reform
The Ontario Teachers' Pension Plan Board is turning up the heat on its efforts to reform how companies it
invests in hand out their stock option perks.
The pension giant is backing a proposal from a Quebec-based shareholder rights group designed to reward
executives who outperform their competitors, which would reduce lucrative stock options for those
individuals who lag behind other firms in their sector.
Focusing on Canada's big banks, the Association for the Protection of Quebec Savers and Investors Inc. says
that the exercise price, or value, of stock options should be directly linked to a bank's performance
relative to its competitors. The value of options currently depends on the performance of an individual
bank's stock price.
"They [bank executives] should not have a free ride because the stock market goes up," says the
association's president Paul Lussier.
Teachers' has spent the past several years quietly lobbying dozens of companies on this issue, including
the banks, but has had little success to date. However, Brian Gibson, senior vice-president of active
equities with Teachers' in Toronto, tells BENEFITS CANADA that its decision to back the Quebec group is
garnering a lot of attention that he hopes will translate into action in corporate Canada.
"We decided to become more vocal about this issue. We are not focusing on the banks specifically, it's just
that their proxies are in front of us currently," says Gibson. He adds: "We don't mind senior executives
getting stock options, in fact we encourage it. But the vesting time needs to be tied to [the company's]
performance objectives."
Gibson hopes the move will be backed by other major Canadian pension funds and focus corporate boards'
attention on the governance of stock options. He adds that the overall objective is to raise the standards
of performance in corporate Canada and the value of Canadian stocks in the process.
"We have $12 billion invested in Canadian stocks alone. We are such a big plan that we don't have the
option to say, 'I don't like this company's shares so I won't buy them,' " says Gibson. "The better the
performance of companies in Canada, the better our fund will be over time."
All of the major banks' boards of directors have recommended that shareholders vote against the proposal,
claiming there are competitive reasons for maintaining the current system. The Royal Bank has told its
shareholders that its options plan provides an incentive to enhance shareholder value.--Kathryn
Dorrell
Life insurers score well
In light of the trading scandal at TransAmerica Life Insurance Company of Canada last year--in which a
group of employees at the insurance company exploited a flaw in the valuation method of one of the firm's
segregated funds for personal gain--the Financial Services Commission of Ontario (FSCO) commissioned a
report to determine what kinds of policies Canadian insurers have in place regarding codes of employee
conduct.
The survey studied 34 insurance companies in Ontario that sell segregated funds. The report, Final
Report: Conflicts of Interest, Compliance and Governance in Financial Services, says compliance
policies with regards to personal trading fall into three broad categories:
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Companies with poor compliance in this area have inadequately drafted and implemented codes of conduct
and poor governance practices for detecting, reporting and enforcing personal trading by employees.
"These companies are in a very small minority," reads the report.
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Companies with effective compliance have reporting requirements for personal trading but apply those
rules only to company insiders--those employees who are regularly in possession of material, non-public
information. "Most financial services companies reside in this category," notes the report.
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The most comprehensive way of dealing with personal trading by employees is to require all employees to
report all trades of all company shares, products and services at all times and have comprehensive
reporting and monitoring procedures in place to detect wrongdoing. "To the best of the researcher's
knowledge, information and belief, no Canadian financial services company complies strictly with such
ideal compliance conditions," says the report.
Brian Donlevy, information officer with FSCO in Toronto, says the report contained no surprises and that
the agency is satisfied with the report's results.
"The majority of insurers' have really good systems in place," he says. "All the companies have reporting
systems in place and for the firms where improvements are needed, it isn't anything that would put the
public at risk or adversely affect investors."
Donlevy says FSCO will follow up with the companies that need improvement in their compliance practices.
Ontario to cover Exelon
The Ontario government will list Exelon on its provincial formulary. The drug, manufactured by Novartis
Pharmaceuticals, is used to treat mild to moderate Alzheimer's disease. Cost of treatment is about $5 per
day, or $1,800 a year. It was approved for use in Canada by the federal government last June. Ontario is
the third province, after Quebec and Alberta, to include the drug on its provincial formulary.
Joint Forum releases paper this month
The Joint Forum of Financial Market Regulators--comprised of the Canadian Association of Pension
Supervisory Authorities (CAPSA), the Canadian Securities Administrators and the Canadian Council of
Insurance Regulators--is set to release its long-awaited paper on investment disclosure in defined
contribution (DC) plans this month.
"We tried to come to an agreement among regulators as to what would satisfy all of our requirements in
terms of member protection," says Sherallyn Miller, superintendent of pensions in B.C. and chair of CAPSA.
The paper proposes a uniform regulatory framework for investment disclosure in DC plans, including group
registered retirement savings plans. "We are not addressing implementation of these proposals because
that's a very complex issue," says Miller. "We've got three different types of regulators and there's all
kinds of different options for implementation."
Once the paper is released, interested parties will likely have 90 days to provide feedback to the Joint
Forum.
"We're trying to develop a consensus among regulators and among different jurisdictions. Once we have that
consensus, it's up to governments to do with it what they wish," says Miller.
Professors launch pension suit
A group of retired female University of Toronto (U of T) professors has launched a class action suit
against the university that claims years of wage discrimination has left them with paltry pensions.
The professors involved in the suit retired before equal pay legislation forced the university to review
the salaries of female academics in 1991. The average pay equity award was $6,500. Pre-1991 retirees
received nothing, and many received pensions of less than $25,000 a year.
There are reportedly 88 female professors who retired before 1991. The class action seeks back pay for
female professors as well as pension adjustments.
Two of the plaintiffs said they wrote several letters to current U of T president Robert Birgeneau and met
with him to urge the university to address the issue.
The women say they were told by senior administrators that pension improvements are part of negotiations
between the university and the University of Toronto Faculty Assoc-iation, and that the university did not
want to make any arrangements with the retired professors that would open the door for similar claims.
"I'm not aware that an approach like this has been taken before in Canada," says Elizabeth Shilton, a
partner with the Toronto law firm Cavalluzzo, Hayes, Shilton and MacIntyre. "But I [don't] see why it
wouldn't have a reasonable chance at success. If the equity pay claim succeeds, I see no reason why the
pension [claim] would not."
--Kathryn Dorrell
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