TradeTitle Akkurat Talk Light Pro 30/34 (30) Special Edition for the 2018 CAUBO Treasury and Investment Pre-Conference Seminar

June 2018 special edition Evolving Complexity in the Pension Industry

Now more than ever, we’re hearing available expertise, as well as the internal from clients about data – their need for and regulatory governance requirements, instant, tailored and flexible data as they such as National Instrument 31-103 confront a new investment, governance “Registration Requirements, Exemptions and data environment. Data drives the and Ongoing Registrant Obligations,” and client experience, and it’s where we’re the Office of the Superintendent of Financial focusing more of our time and effort. The Institutions Canada (OSFI) Guideline B-10 asset allocation landscape has shifted requirements. Vendor management and rapidly with rising complexity around new oversight is a key component of risk and Michael Garneau is Vice President, strategies, insights and access to data. transparency. Risk management is expected Relationship Management, Eastern At the same time, we’re seeing pension to remain at the forefront for plans to show Canada at CIBC Mellon. Mike is plans focus on achieving transparency, clear evidence of prudent decision-making, responsible for overseeing strategic flexibility and reporting across traditional demand effective governance and to client relationships for CIBC Mellon and other asset classes such as alternative demonstrate oversight. across Ontario, Quebec and Atlantic investments. As plans and investment Canada, with a particular focus on managers focus on their core capabilities, It is the process, people and platform pension plans and asset owners. He we are seeing an increasing trend to review that can help drive the business forward, joined CIBC Mellon in 2017, bringing outsourcing options for technology and with a shift toward an innovative culture with him more than 25 years of asset operational processes. As a result, this can and fintech principles. Accordingly, servicing experience across a diverse potentially create multiple layers of vendor CIBC Mellon is working to innovate with array of roles and organizations. outsourcing and interconnectivity with clients as we seek, as always, to further increased levels of complexity. enhance accuracy, operational efficiency This is an excerpt of the CIBC Mellon article, and consistency. Standing still is not an “Evolving Complexity in the Pension Industry,” which originally appeared in the fall 2017 As plans compare insourcing versus option during this time of innovation and issue of The Observer. For more information, outsourcing, they should consider the technological change. view the full article.

What’s Inside? Evolving Complexity in the Deliberating Investment Blockchain and Bitcoin The Race for Assets: Pension Industry Delegation: Is OCIO the Right Technology for Asset Alternative Investments Way to Go? Servicing Surge Ahead By Michael Garneau, Vice President, Relationship Management, Eastern Canada By Claire Johnson, Senior Vice President, By Jens Hembach, Director, By Jon Lofto, Director, Business Strategy and Corporate Development Process Excellence Development, Alternatives 1 2 3 4

Trade talk / june 2018 special edition // 1 By claire Johnson Senior Vice President, strategy and corporate development

Deliberating Investment Delegation: Is OCIO the Right Way to Go?

Managing a pension plan or endowment fund in today’s investment environment comes with a number of challenges. Maximizing returns to meet funding objectives and taking advantage of diverse investment opportunities means sponsors and investment committees need to have the right tools at their disposal to make informed decisions. Institutional investors have recently shown increasing interest in an Outsourced Chief Investment Officer (OCIO) model – hiring a third-party firm to make investment recommendations and/or decisions – as one way to help them achieve these goals.

Initially, OCIO was considered as an alternative for smaller institutions with limited staffing CLAIRE JOHNSON IS SENIOR and resources as a way to obtain investment expertise, professionalized management VICE PRESIDENT, STRATEGY AND and access to attractive investment opportunities. Over the past decade, markets have CORPORATE DEVELOPMENT AT become increasingly complex, intensifying the challenge facing institutional investors CIBC MELLON. SHE HAS OVERALL of all sizes. As a result, larger institutions, including a number of U.S. universities and RESPONSIBILITY FOR CIBC MELLON’S endowment plans, are outsourcing, or at least investigating the pros and cons of OCIO, STRATEGIC INITIATIVES. CLAIRE HAS including funds with more than $10 billion in plan assets1. With OCIO service providers MORE THAN 25 YEARS OF FINANCIAL expanding their solutions, more and more larger players in the Canadian pension SERVICES EXPERIENCE. arena are interested in outsourcing their chief investment officer responsibilities too.

With greater competition, service providers are developing new and innovative solutions. This can be beneficial to pension plans that are looking to outsource some of their investment responsibilities, but this also presents a range of considerations when deciding which OCIO to choose. In a report entitled, “Winning in the New World of Outsourced CIO,” Greenwich Associates identifies three types of OCIOs: Independents, Consultants and Managers. In its report, Greenwich describes Independents as having a straightforward structure and experienced investors, while Consultants often have existing advisory relationships with clients and can provide greater scale, and Managers employ strong brand equity and a well- resourced distribution effort2.

Another consideration is whether to engage in a traditional investment consultant model or a delegated model. In a consultant model, the investment committee is responsible for making all strategic and operational decisions, but receives guidance from the OCIO in an advisory capacity. In a delegated model, the investment committee retains the ability to influence high-level strategic direction, but operational tasks such as day-to-day investment decisions, developing a de-risking roadmap, selecting investment managers, reporting and monitoring are handled by the OCIO.

Some OCIOs also choose to outsource administrative responsibilities to third-party For more information on CIBC Mellon’s service providers. CIBC Mellon can work with OCIOs to provide custody, accounting OCIO solutions or services for institutional and reporting to clients, and to develop shared efficiencies through scale, strong investors, please contact your CIBC Mellon governance practices and large-volume onboarding capabilities. Service Director or Relationship Manager, or a member of CIBC Mellon’s business Regardless of which type of OCIO they’re seeking or which model they want to development team at 416-643-5000. implement, institutional investors looking to engage an OCIO should clearly understand their investment strategies and objectives, and consider the pros and cons of outsourcing these responsibilities before selecting the most appropriate partner.

1, 2 “Winning in the New World of Outsourced CIO.” Greenwich Associates, April 10, 2018.

Trade talk / june 2018 special edition // 2 By Jens Hembach Director, Process Excellence

Blockchain and Bitcoin Technology for Asset Servicing

If you joined the industry before computers or printers were fundamental to day- to-day business operations, the words Blockchain or Bitcoin (let alone Litecoin and Ethereum) may give you pause, or for some, increase your enthusiasm. Investors, institutional providers and regulators are at various stages of exploration and investigation; CIBC Mellon and its parent companies, BNY Mellon and CIBC, continue to actively explore Blockchain and Bitcoin.

With a focus on strengthening our ability to meet clients’ evolving needs as the industry drives forward into a new era of data, technology enablement and cyber Jens Hembach is Director security, CIBC Mellon is investigating how Bitcoin and Blockchain can separately and of Process Excellence at collectively contribute to asset servicing from a number of perspectives including CIBC Mellon. Jens is responsible technology and operations for our business, assets and administration for our for implementing CIBC Mellon clients, and across a broad range of collaborative initiatives and industry forums. process improvement and innovation initiatives to drive AS A Technology and operational tool both internal and external Blockchain continues to gain traction based on the assessment of its potential efficiencies. He has MORE THAN 13 to drive significant operational efficiencies. Blockchain-based solutions may years of experience within the empower opportunities to reduce the need for reconciliations across systems, financial services industry. provide faster and more transparent flow of transactions, and enable different types of partners to engage on a common, shared platform. With a ledger tracking every transaction and data entry with a digital time stamp, it has the potential to make the auditing process easier and more efficient.

At CIBC Mellon, there is a robust focus on cyber security as we take CIBC Mellon and its clients into the data era. Blockchain may have an important role to play in risk reduction and security. Using its simultaneous recording of information, its audit trail enables enhanced visibility to assets and interactions with that asset to be tracked and linked, facilitating asset perfection and reducing risk of double-pledging assets.

As an asset or currency The Chicago Board Options Exchange and the CME Group have both recently announced intentions to launch Bitcoin Futures products. CIBC Mellon is preparing to support the administration associated with investment in Bitcoin Futures, which will consider only the administration of Bitcoin Futures and will not include custody of physical Bitcoin or other types of cryptocurrency at this time.

BNY Mellon and CIBC have publically announced participation in projects such as the UBS-led Utility Settlement Coin (USC) initiative, which is an asset-backed This is an excerpt of our article, “Blockchain and Bitcoin for Asset Servicing” which was digital cash instrument implemented on distributed ledger technology for use published in the December 2017 edition of within global institutional financial markets. This working group aims to partner Trade Talk. For more information, view the with central banks and regulators to promote a regulation-compliant, robust and full article. efficient structure within which the USC can be deployed fully.

Trade talk / june 2018 special edition // 3 By jon lofto director, business development, alternatives

The Race for Assets: Alternative Investments Surge Ahead

At a time of sustained low interest rates and quantitative easing programs dampening yields on investment funds, there is a push by institutional investors toward alternatives. BNY Mellon recently released a global research study on alternative assets, in partnership with FT Remark. BNY Mellon’s white paper, “Race for Assets: Alternative Investments Surge Ahead” reports that appetite for alternative assets is at an all-time high, as investors continue to search for yield and diversification. While the future for alternatives looks bright, the new inflows come with higher demands of fund managers. Jon Lofto is Director, Business BNY Mellon’s research study features unique perspectives from over 450 Development, Alternatives at senior leaders of institutional asset owner, investment management and fund CIBC Mellon. He is responsible management firms from Canada, the United States and elsewhere around the for bringing advanced real world, and includes commentary from BNY Mellon leaders. The paper explores estate, private investment, topics such as: why 53 per cent of investors predict alternatives will grow in infrastructure, hedge fund and the next 12 months, which asset classes are outperforming, how hedge funds other alternative investment can regain their ground, how technology can help managers address investor solutions to Canadian institutional demands more efficiently, and many more topics. The insights are intended to investors. He joined CIBC Mellon in help institutional investors and asset managers in the year ahead. 2013 and has held progressively senior roles across operations, For more information, read BNY Mellon’s white paper, “The Race for Assets: relationship management and Alternative Investments Surge Ahead.” relationship development.

Explore both issues of BNY Mellon’s Race for Assets series

Alternative Investments At the Crossroads: Surge Ahead Investor Demands and Fund Manager Realities

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