Product news: Desjardins brings first ALDAs to market

KEY TAKEAWAYS

• Canada’s first ALDAs
• New ETF provider
• Social impact fund launches
• Sagard buys stake in PE firm

Two years after legislation passed allowing insurers to put advanced life deferred annuities (ALDAs) on their shelves, the first such products have come to market.

Desjardins Group said Wednesday that it’s offering ALDAs, which allow retired clients to delay withdrawals from registered accounts until later in retirement.

Clients can transfer up to 25% of the assets held in their RRSP or RRIF (to a maximum of $160,000 in 2023 and $170,000 in 2024) into an ALDA. The annuity defers payments — along with taxes on those payments — until the client is 85.

The financial industry has for years asked government to push back the age at which RRIFs must be drawn down as Canadians work and live longer. The idea is that ALDAs allow clients to offset longevity risk by preserving assets for later in retirement while reducing taxable income — and potentially avoiding clawbacks on old age security and the guaranteed income supplement — earlier in retirement.

ALDAs were introduced in the 2019 federal budget and legislation allowing for them was passed in 2021.

Moshe Milevsky, a finance professor with the Schulich School of Business at York University in Toronto who coined the term “ALDA” two decades ago, said the two-year wait was likely because developing a new product takes a long time. Still, he said, the annuities may not “have come into existence had it not been for the fact that the yield curve has moved up by a few hundred basis points.”

The combination of higher interest rates and concerns about the cost of living have led to renewed interest in annuities. Last month, Manulife Financial Corp. re-entered the annuities market in Canada five years after exiting amid low client demand.

Philippe-Olivier Dumas, section manager for product development with Desjardins’ guaranteed investment funds and annuities team, said his firm has seen record sales for annuities this year.

But Desjardins had been looking to develop ALDAs since they were first announced, he said: “Even if interest rates were lower, it would still make sense to launch this kind of product.”

Dumas said the rates for ALDAs are similar to what’s offered for life annuities. A $160,000 investment in an immediate annuity purchased at age 71 would pay $1,079 per month, Desjardins said, at a rate of 5.25%. The same amount invested in an ALDA at age 71 would pay $4,875 per month at age 85.

Dumas described ALDAs as a “niche product” that will appeal to clients who already have money set aside for retirement and want to defer taxation. “That’s the main advantage of the product,” he said.

Milevsky said the annuities make sense for people with considerable assets — the top 40% of income earners — who are “pension poor.” This includes professionals such as doctors and small-business owners who don’t have a corporate pension.

Desjardins’ ALDAs are offered through RRSPs and RRIFs for now, Dumas said, but not from locked-in retirement accounts, which are governed by provincial legislation.

New ETF provider

Toronto-based Tralucent Asset Management Inc. became Canada’s 41st ETF provider last month when it launched an ETF version of its offering-memorandum fund.

The Tralucent Global Alt (Long/Short) Equity Fund ETF (TSX: TGAF) is a liquid alternative fund that uses both long and short strategies to reduce volatility and enhance returns. The fund has 200 long positions — mostly in U.S. mid and large caps — and 46 short positions, and may employ leverage on long positions.

The fund was relaunched in October with a simplified prospectus. The management fee is 2.06% for class A, and 0.97% for class F and the ETF (which began trading on Nov. 16).

Since inception in March 2020, the offering-memorandum version of the fund has an annualized return of 18.72%. It was up 17.10% for the year to Oct. 31.

Franklin launches social impact fund

Franklin Templeton Canada introduced a new equity fund late last month that invests in companies that contribute to social fairness, inclusion and a sustainable economy.

The Franklin Martin Currie Improving Society Fund is a high-conviction portfolio of 25 to 30 global companies. The companies’ products or services must contribute to improving people’s well being, providing access to financial and educational resources, or supporting a just transition to a lower-carbon economy.

The active fund has a medium risk rating and a 1.65% management fee for series A (0.65% for series F).

Sagard buys stake in PE firm

Montreal-based alternative asset manager Sagard Holdings Inc. is acquiring a strategic stake in Performance Equity Management (PEM), a private equity firm out of Greenwich, Conn. with US$8.9 billion in assets under management.

PEM manages venture capital and private equity strategies through both commingled funds and separately managed accounts for institutional clients and wealth management platforms. Sagard’s investment allows it to offer fund of funds and co-investment strategies, a release said.

“Our acquisition of a strategic stake in PEM will enable Sagard to accelerate the development of its product offering to retail networks, wealth management firms and family offices,” Sagard chairman and CEO Paul Desmarais III said in the release.

Under the agreement, Sagard will have the opportunity to acquire all of PEM’s remaining equity on Dec. 31, 2028.

The deal is expected to close, pending regulatory approvals, in the first quarter of 2024. The transaction will be funded with cash on hand, though further terms weren’t provided.