Plan sponsors may wish to consider whether this investment news has any implications for the investment options available within their plans. Sun Life Assurance Company of Canada purchases units of the funds listed below. They are established as segregated funds under the Insurance Companies Act (Canada).

TD Greystone recently announced changes to the TD Greystone Target Date Plus fund series (Target Date Plus), as well as changes to some of the investment teams that support the funds. We have also provided an update on the allocations to alternatives within Target Date Plus which we first communicated in October 2023.

1. Changes to Target Date Plus glidepath:

TD Greystone reviews the Target Date Plus glidepath annually. The review incorporates changes to long-term capital markets assumptions, demographic assumptions, asset classes, and funds. While no new asset classes were added for 2024, TD Greystone did make some material changes aimed at optimizing investment performance and managing risk across various market scenarios. The changes were in response to changing global economic conditions, including increased bond yields, slightly reduced equity return expectations, and evolving retirement expenditure needs. Changes are depicted in Figure 1 below and include:

• Decreases in equity and alternatives allocations and increases in fixed income allocations across all funds.
• Removal of China equities as a strategic allocation (can still be used opportunistically).
• Within equities, a reduction in low volatility equities for shorter-dated funds and an increase for longer-dated funds.
• Within equities, a reduction in yield-oriented equities across all funds, except Retirement.
• Within fixed income, an increase in High Yield and Private Commercial Mortgages.
• Within fixed income, an increase in duration exposure via an increase in Universe bonds and a decrease in Short-term bonds for shorter-dated funds, along with an increase in Long-term bonds for longer-dated funds.
• Within alternatives, a small reduction in Canadian real estate.

Figure 1: TD Greystone Target Date Plus Glidepath % changes for 2024

Figure 2 shows the new strategic glidepath.

Figure 2: 2024 Strategic Glidepath for Target Date Plus

2. Alternatives Investment Team Restructuring:

In early 2024, TD Global Investment Solutions (TDGIS) announced the departure of Jeff Tripp, Managing Director, Head of Alternative Investments, to pursue external opportunities.

As Head of Alternatives, Tripp oversaw the business operations of the Infrastructure, Real Estate, Mortgages, and Private Debt teams, provided strategic guidance, and acted as Chair of the Alternatives Investment Committee (AIC) which approves all transactions and major portfolio activities for these asset classes. Tripp’s departure precipitated other changes within the Alternatives investment team. We list the most significant changes below:

• Colin Lynch, Head of Global Real Estate Investments, assumed the role of Head of Alternative Investments from Tripp.
• Andrew Croll, Alternatives Client Portfolio Management, replaced Lynch as Head of Global Real Estate Investments.
• Monish Arora, Client Portfolio Manager, replaced Croll as lead of Alternatives, Client Portfolio Management, and also joined the AIC.
• Matthew Sych expanded his role from leading the Canadian Portfolio and Asset Management Team, to managing the global team.
• Scott Linner, Real Estate Investments, transitioned from leading portfolio management to leading macro and sector research as Head of Research.
• Shane Lewis assumed the role of Head of Global Fund Operations after the departure of Dwight Chase, and also joined the AIC.

These changes impact the Target Date Plus funds, which have an allocation to alternatives between 18%-25%.

3. Changes to the TDGIS Public Equities teams:

In early 2024, TDGIS announced that Jeff Tiefenbach, a Lead PM on several TD Greystone international and global equity strategies, would depart the firm at the end of March 2024. Tiefenbach was the Lead PM for Global Equity and Global Income & Growth, which constitute between 13% and 41% of the Target Date Plus funds, varying by fund, as of December 31, 2023. Co-Lead PM Himanshu Sharma assumed Tiefenbach’s responsibilities. Sharma is joined by new Co-Lead PM’s Michael Brown and Terrence Chung. Sharma and Chung also manage U.S. equity strategies, while Brown also manages international equity strategies.

4. Update on dilution of alternatives in Target Date Plus:

The current allocations to alternatives within Target Date Plus funds are less than their strategic targets due to significant asset inflows in late 2023. TD Greystone allocated these inflows to the public equities and fixed income underlying funds, until the less liquid alternatives funds are able to invest them.

Figure 3 shows the strategic allocations to alternative asset classes by fund.

Figure 3: Strategic allocations within alternatives by target date vintage

TDGIS provided the estimated allocations for Target Date Plus funds following a capital call in early April 2024, in Figure 4.

Figure 4: Estimated actual allocations within alternatives following capital calls

The allocations to Commercial Mortgages now exceed their strategic targets. Recent capital calls from the TD Greystone Infrastructure Fund (Canada) LP II in December 2023 and February 2024 have increased the allocations to Infrastructure. Low transaction activity in Real Estate has slowed investment but an April 3, 2024 capital call has brought the allocation closer to target. Following the capital calls, all Target Date Plus funds are estimated to be within 3% to 5% of their target allocations to alternatives.

Sun Life GRS Investment Solutions’ view

We are comfortable with the changes to the glidepath that TD Greystone have introduced for 2024. With bond yields higher and equity valuations more stretched, it makes sense to reallocate assets to fixed income. Within alternatives, the reduced allocation to real estate reflects its lower risk premium in comparison to public markets and commercial mortgages. We are also happy to see the alternatives allocations gradually move back up towards their targets, especially in Infrastructure. We will continue to monitor the exposures, particularly in Real Estate, where allocations still significantly lag their targets.

The recent departures of Jeff Tripp and Jeff Tiefenbach raise some concerns. Tripp’s departure is a loss for the firm and Target Date Plus. Tripp was highly experienced and helped to build both the real estate portfolio and the broader alternatives portfolios and teams. The alternatives within Target Date Plus are a significant element of the series’ value added proposition. Tripp’s replacement, Colin Lynch, is not as experienced as Tripp, but has an impressive resume of accomplishments. TDAM has a solid core of experienced professionals in the alternatives team that helps to mitigate the impact of Tripp’s departure. Tiefenbach managed a material portion of the assets in Target Date Plus, particularly for the longer-dated funds with higher equity allocations. His replacement, Himanshu Sharma, provides continuity on the strategies and has significant experience with U.S. Equities, which have grown to comprise a significant majority of global equity assets in recent years. Michael Brown will provide expertise in international equities.

We continue to have Target Date Plus under ‘Additional Monitoring’ (least severe category) on the GRS Investment Solutions Watch List. We will monitor the team changes, as well as the allocations to alternatives and provide further updates as needed.

Questions?

Please contact your Sun Life Group Retirement Services representative.