Despite the headwinds blowing through the Montreal financial hub, the success of Trans-Canada Capital (TCC) is proof that it’s possible to get this vital industry back on track.
Published October 5, 2020
The Air Canada subsidiary, one of the city’s best kept secrets, has managed a 180-degree rotation over the past 10 years. And its leaders are full of ideas: acquire external clients, launch an insurance company that can become as large as an industrial alliance …
“It rages a bit here!” says the chief, Vincent Morin. “We are convinced that we have talent in Montreal. We are able to create interesting things,” he says.
Who would have thought that in 2009?
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To get out of the credit crunch, the airline’s pension plan shows a massive deficit of 2.8 billion, which is ten times greater than the stock market value of Air Canada, which is in the midst of restructuring.
As a consulting actuary at Mercer, Vincent Morin proposes an entirely new approach. Instead of a classic portfolio of 60% stocks and 40% bonds, he recommends an innovative strategy for Air Canada. Essentially, it’s about significantly increasing the bond ratio in order to reduce risk, while betting on derivatives and alternative investments to generate attractive returns.
The company loves the idea. So much so that he entrusts Vincent Morin with the controls of his pension plan.
Starting from scratch, brings 80% of management within the company. The team, which used to be just five people, now has 75 employees working in French, in Montreal, where Air Canada’s head office is located.
“We went looking for the guys we helped grow up,” says COO, Julie Bauminville. While high funding is increasingly dependent on data or artificial intelligence, Montreal is a great incubator where talent is easier to retain than the US where giants like Google attract programmers and other experts.
The TCC team has achieved unenviable results with the biggest clubs in New York or London. Over 10 years, TCC has a compound annual return of 11.4%, which is an added value of 3% per annum over its benchmark.
Now, the pension plan shows a surplus of 2.6 billion, which has allowed Air Canada to take contributing leave. “These days, the company does a lot of good,” confirms Vincent Maureen.
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This contrasts with the industrial trend of backward labour.
Since 2004, jobs in the financial sector have increased only 11% in Quebec, compared to 27% growth in Canada, as evidenced by an analysis published by CIRANO at the end of August.
The situation appears to be getting worse, given that job creation has stagnated in Quebec since 2009, while it is up more than 10% in all other major provinces.
where is the problem ?
Despite the enviable performance of Quebec financial institutions, many jobs are disappearing due to the digitization of the service offering and the modernization of computer platforms.
These changes are accelerating the centralization of work in head offices, which mainly benefits Toronto and detrimental to regional centers, as it is no longer necessary to maintain service points.
“It is death by attrition for the world of finance! There are no new vacancies. People are leaving and not being replaced,” said Marc-Andre Soublier, Senior Vice President of TCC.
As asset management becomes increasingly complex, pension plans are looking abroad to invest in new alternative asset classes.
To give you an idea, the plans of companies, municipalities and universities in Quebec give overseas administrative mandates in the amount of nearly $80 billion. Two-thirds of that amount is allocated to managers from outside the province, according to a 2018 study by the Statistics Institute of Quebec.
Capital that flies away. Highly qualified jobs being lost.
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For its part, the TCC was not afraid to tackle more complex strategies. It must be said that it has the critical mass, with 23 billion in assets, making it the second largest corporate pension plan in the country, after Bimcor (Bell Canada) which has 25 billion.
A few years ago, Vincent Maureen recalls the phone call to a hedge fund manager (hedge funds) The New Yorker to discuss a deal he wants to make internally. The specialist answered: “Ah, a very good idea, I will put it to work! »
Then he said to himself, “We’re paying someone in New York and we’re the ones to give them transaction ideas. Maybe we can do more research and do it ourselves,” says Mr. Morin.
Today, TCC has $1.2 billion in assets in its hedge fund, making it one of the three largest funds in Canada. Now he wants to offer his services all over the world. Two institutional clients, including a worker-sponsored fund, have already given him a mandate.
At the same time, TCC has taken steps to create an insurance company, which can allow it to guarantee its pension … And why not seek other pension plans to reduce its risk?
The sky is the limit.