March 14, 2019

Update on the Sun Life Multi-Strategy Target Return Segregated Fund (sub-advised by Aviva Investors Limited)

Sun Life Assurance Company of Canada purchases units of the funds listed below, which are established as segregated funds in accordance with the Insurance Companies Act (Canada).

Fund investment manager / sub-advisor
The Sun Life Multi-Strategy Target Return Segregated Fund (the “Fund”) available on the Sun Life Group Retirement Services (“GRS”) core investment platform is currently managed by Sun Life Global Investments (Canada) Inc. (SLGI) and sub-advised by Aviva Investors Limited (“Aviva”). The Fund currently invests directly in Sun Life Multi-Strategy Target Return Fund (the “SLGI Fund”). On March 13, 2019, SLGI announced its intention to terminate Aviva and fundamentally change the SLGI Fund’s investment objective. This change is required as a result of regulatory changes, as highlighted below:

  • The SLGI Fund was initially structured as a commodity pool under National Instrument (“NI”) 81-104. Effective January 3, 2019, the Canadian Securities Association (“CSA”) introduced a new alternative mutual fund framework within NI 81-102. The new framework folds funds designated as commodity pools under NI 81-104 into NI 81-102 as alternative mutual funds.
  • The new alternative mutual fund framework introduces certain constraints that will interfere with the SLGI Fund’s investment strategy. As a commodity pool, the Fund has until July 4, 2019 to comply with the new alternative mutual fund framework. While the new framework offers considerable investment flexibility compared to traditional mutual funds, it introduces certain constraints that Aviva indicated they cannot meet, while keeping the same investment and target return objectives.

In order to preserve GRS plan sponsors’ current relationship with Aviva as manager of the Fund and maintain the same investment strategy, GRS is working with Aviva to access the Aviva Investors Multi-Strategy Target Return pooled fund (the “Aviva Fund”), a Canadian-domiciled fund, directly. The Aviva Fund is not subject to CSA constraints and the Aviva Fund’s investment strategy remains unchanged. Going forward, pending required approvals, the Fund will switch from buying units of the SLGI Fund to units of the Aviva Fund directly some time in May 2019 which would preserve the existing investment strategy and investment objectives of the Fund. This transaction will be a taxable event for non-registered assets. Updates will follow closer to that date.

Update on Aviva’s performance and investment staff restructuring
The Aviva Fund follows a flexible investment approach that seeks to deliver a positive 5% return per annum above the bank of Canada Overnight Lending Rate, gross of fees, on average, over rolling three-year periods, with half the volatility of global equities as represented by the MSCI All Country World Index. While volatility has generally been low since inception (less than half of volatility of global equities), the fund’s performance to December 31, 2018 has lagged materially (i.e. over 8% below benchmark since its inception in October 2016).

In June 2018, Aviva announced a number of changes to its investment team and its organizational infrastructure to enhance alignment of investment capabilities, foster collaboration, upgrade skills and remove “road blocks”.  Under this major restructuring, Aviva has created a new “Multi-Asset and Macro” investment unit headed by Peter Fitzgerald, Chief Investment Officer and portfolio manager for the Aviva Fund. The new Aviva investment unit integrates previously separate Global Rates and Emerging Market Debt teams, as well as various asset class specialists, into one entity.

As part of the changes, three senior investment team members departed from Aviva, namely:

  • Dan James (Global Head of Fixed Income),
  • Charlie Diebel (Global Head of Rates) and
  • Brendan Walsh (Portfolio Manager)

Mr. James and Mr. Diebel’s roles were considered redundant under the new structure. Mr. Walsh had managed the “volatility strategies” portion of the Aviva Fund, which had detracted value since inception. Mark Robertson, who joined Aviva in September 2018 as Head of Multi-Strategy Funds, was added as a portfolio manager and assumed Mr. Walsh’s responsibilities. James McAlevey who was promoted to the role of Head of Rates, was also added as a portfolio manager on the Aviva Fund.

Subsequent to the announced changes, we were informed that Ian Pizer relinquished his role as portfolio manager on the Aviva Fund for family reasons. Mr. Pizer will continue to contribute to the Aviva Fund on a part-time basis as a senior advisor.

The restructuring follows poor performance from Aviva’s multi-strategy funds. The senior-level departures included individuals who joined Aviva from the original Standard Life team, responsible for pioneering the global absolute return strategies (“GARS”). We have some reassurance in the new team additions, and most importantly the personnel who remain, including the key architect of GARS, Euan Munro, along with key decision-maker Peter Fitzgerald.

Since Aviva made these changes, SLGI has been monitoring events closely. In the fourth quarter of 2018, SLGI completed a due diligence trip to Aviva’s offices in London, England.  They noted that Aviva is fully committed to making the strategy work. They also noted that performance relative to peers in the absolute return/diversified growth categories has been good and that volatility has remained low. There were no immediate qualitative concerns as a result of these changes. The GRS Investment Solutions team met with Aviva in January 2019 to better understand the rationale for the new structure. While we have confidence that the revised structure makes sense, we have placed the fund On Watch and will be closely monitoring the team and its performance in the upcoming quarters.

How does this impact you and your plan members?
There is no action required of you or your plan members as a result of this update. 

Please contact your Sun Life Financial Group Retirement Services representative.