CAAT Pension Plan Hits 118% Funded

CEO says plan is ‘in discussions with several organizations and employee groups’ about joining the fund.

According to its latest actuarial valuation in January, the $9.4 billion Colleges of Applied Arts and Technology Pension Plan (CAAT) is 118% funded, with a $2.3 billion funding reserve.

While this is not just an upgrade of the previous year, when it was 113% funded with a $1.6 billion funding reserve, the valuation will be filed with the regulator sometime in the next few weeks.  By choosing to file the actuarial valuation, CAAT will not have to file another valuation until 2021, keeping flat contribution rates for its 46,000 members and 41 employers until 2022.

To guarantee economic and demographic assumptions are still realistic and appropriate for CAAT’s risk tolerance, each funding valuation includes a review of each of the aforementioned assumptions. According to the valuation, the discount rate remained at 5.6%

“As of January 1, 2018, our funded ratio, the core measure of benefit security, reached 118%—the strongest position since becoming jointly governed 22 years ago,” Derek W. Dobson, CAAT’s CEO and plan manager, said in a statement.

Want the latest institutional investment industry
news and insights? Sign up for CIO newsletters.

“Research shows that Canadians want the adequate and predictable retirement income that a well-governed and expertly managed defined benefit plan delivers and they are willing to make meaningful contributions to it. Employers benefit through lower operating costs, stable contribution rates, and lower risk by exiting the pension management business,” he said. “Long-term projections show the plan’s financial health should remain resilient into the future providing benefit security and contribution stability to our members and employers.”

The fund—a modern defined benefit plan—has been jointly governed since 1995, meaning that government, community, and private sectors work together to achieve the goals of the overall fund rather than just focus on individual sectors. The plan is also jointly sponsored by three entities: the College Employer Council, the Ontario Public Service Employees System, and the Ontario College Administrative Staff Association.

When it comes to building additional reserves, prefunding conditional inflation protection, and reducing contributions, the CAAT’s plan governors can utilize any combination under the plan’s funding policy. The plan governors currently decided that the best move at this time is continuing to allocate additional reserves to ensure benefit security and contribution stability.

The plan has also continued to grow by adding new employers, including the Youth Service Bureau (YSB) of Ottawa, whose plan members voted in favor of a merger of the YSB’s defined benefit plan with the CAAT’s. If the regulator approves of the asset transfer, it will be second time a single employer defined benefit pension plan will merge with the CAAT, the first being the 2016 merger of the Royal Ontario Museum pension plan.

“The CAAT Plan is open and ready for growth in membership where it is beneficial. This includes workplaces with single-employer defined benefit pension plans, defined contribution plans, and those without a pension plan, including those in the private and not-for-profit sectors,” said Dobson. “We are in discussions with several organizations and employee groups about them joining the CAAT Plan and are excited to be able to offer our successful model for sustainable defined benefit pensions.”

Alongside its annual investment report, the CAAT will release its 2017 investment results in April.

Tags: , , ,

Private Equity Buyout Value, Exits Rise in 2017

Report says asset class closes out best five-year stretch in industry history.

The global private equity (PE) industry finished its strongest five-year stretch for fund-raising in the industry’s history, according to a recent report from Bain and Co.

According to the report, large sums of cash continued to flow into private equity throughout 2017, as the $701 billion of private equity capital raised worldwide nearly matched the record set the previous year. Buyout funds led the asset class, increasing 27% from 2016 to capture $301 billion. The report also found that the10 largest funds closed during the year all raised more than their targets.

“This is both a blessing and a curse,” said Hugh MacArthur, global head of Bain’s private equity practice, in a release.  “Funds have ample money to spend, but the competition for deals is fierce. With deals being done at record-high multiples, the right sort of diligence is more essential now than ever before.”

Bain said that at the end of 2017, buyout funds were sitting on an all-time high of $633 billion in uncalled capital ($286 billion of which was in mega buyout funds), with totals rising at 12% compounded annually for the past five years. It also said that reducing “the massive overhang” of uncalled capital will require more deals and larger ones at that.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news.

In 2017, more than 38,000 companies were bought and sold globally, at an estimated value of $3.3 trillion. However, private equity’s share was just 13% by value, and 8% by deal count.

“This structural imbalance is, without doubt, the industry’s biggest challenge, stemming from heavy competition for deals, which puts persistent upward pressure on asset prices,” said MacArthur.  “In the coming years, this, along with heavy competition and the looming threat of an eventual economic downturn will require PE funds to create portfolio company value from the inside out—through better leadership and execution—or accept middling returns.”

MacArthur added that there could also be more M&A-based deals, “including buy-and-build transactions that continue to be a staple of deal-making as well as more, bold, large-scale M&A.”

Other figures released in the report include: 

  • Deal value increased 19% to $440 billion in 2017.
  • Global buyout deal count was up just 2% to 3,077 deals, which is 19% below the record level for deal activity in 2014.
  • General partners sat on $516 billion earmarked for buyouts at the start of 2017.
  • Buyout-backed exit value came in at $366 billion, the third-highest ever, while exit count rose 3%.
  • The median holding period for buyouts was unchanged at five years.

Tags: , , ,

«