Daily News Alerts

To register for Benefits and Pensions Monitor's Daily News Alerts, click here

Decumulation options add riskier assets

Rising inflation and interest rates may be driving more retirees to look for diversification in their sources of retirement income, says Michel Cantin, senior regional sales director, group savings and retirement for western Canada at iA Financial.

This demand prompted it to add foreign equity and alternative funds to its decumulation solutions. “We’ve had those assets on our platform for three or four years,” he said. However, until now they were deemed specialty assets and were seen as “separate and slightly more risky.”

But it started to get a growing number of requests from advisors whose clients were retiring and the rise in inflation and interest rates was putting more emphasis on diversifying their portfolios.

Coupled with the fact these assets are becoming more mainstream, “we eventually agreed that it probably makes sense to actually have these available,” he said.

There has also been a change in attitude towards some alternatives. “Several years ago, infrastructure and emerging markets were super risky. Now, we feel comfortable with these funds and there are no liquidity concerns anymore,” said Cantin.

And there is a general sense within the population and advisors specifically that in order to achieve an expected retirement income, “you need to generate a little bit more and, therefore, maybe take on a little bit more risk,” he said.

Another factor is employers are more familiar with target date funds. Within target date funds, these assets are already available. iA and other carriers have proprietary funds which have alternatives such as structured real estate, private debt, and private equity. “We make those available in a target date solution for active members and now this move will broaden the market to include those entering or in retirement,” said Cantin.

And plan sponsors are following suit. Many of its clients are inquiring about adding these funds to their decumulation options.

While these assets may be more risky, Cantin said they have a stringent fund evaluation process to mitigate the risk. “Like most carriers, we meet with all these fund managers twice a year. We rank them on their process, their performance, and their team and we interview them to identify whether they're meeting the criteria we've setting. So we ensure that we have guidelines and the guidelines are followed by fund managers,” he said.

While the list of its fund includes index funds, for the actively managed funds “we ensure that they follow their investment policies and that they're not beyond those boundaries. The manager themselves have their own set of criteria that they have to follow and we double check and confirm that they stick with their guidelines.”

The new foreign equity funds in its decumulation options are an emerging markets equity index from BlackRock and emerging markets funds from abrdn and Franklin Templeton. The new alternative/specialty funds are a developed real estate index from BlackRock, a global real estate fund from Fidelity Investments, a global infrastructure equity index from BlackRock, and a global infrastructure fund from Lazard.

For details on these stories, visit www.bpmmagazine.com

• Investors well-placed to support human rights
• MOVEit cyber attack reached Nova Scotia
• Canada targeted for alternative investment
• French pension repeal bill pulled
• Dreger joins Sterling
• Engagement examined at session