Guardian Capital's tontine funds are closing after less than three years in the market.BrianAJackson/iStockPhoto / Getty Images
Retired clients concerned about outliving their money will have fewer options that address longevity risk as Guardian Capital LP prepares to close two innovative funds it launched less than three years ago.
Later this month, Guardian Capital LP will terminate GuardPath Modern Tontine 2042 Trust and GuardPath Managed Decumulation 2042 Fund.
Toronto-based Purpose Investments Inc. was the first to bring a tontine fund to Canada in June, 2021, with the launch of Longevity Pension Fund. Guardian followed in September, 2022.
Mark Noble, Guardian’s senior vice-president of retail strategy and sales enablement in Toronto, says that although the funds’ performance was strong, there just wasn’t enough uptake from advisors.
“While this version didn’t get traction, we’re not shutting the door on decumulation solutions for the future,” he says.
Mr. Noble says the GuardPath funds were aimed at clients in their 60s and 70s who had accumulated enough assets for retirement but were looking for a way to derive a consistent income.
Tontines allow investors to pool their money with the understanding that those who die prematurely will lose out and those who survive receive the greatest financial benefit.
GuardPath Modern Tontine 2042 Trust was set to mature at the end of 2042, at which point the surviving investors would share in the fund’s net asset value. GuardPath Managed Decumulation 2042 Fund was designed to provide cash flow over the 20-year life of the fund or until the death of all unitholders.
When the funds terminate, investors will get the value of the investments in their accounts, including the share of the upside that already occurred, Mr. Noble says.
The tontine trust has about $1.6-million in assets under management (AUM), while the decumulation fund has about $1.2-million.
Jason Pereira, senior partner and certified financial planner at Toronto-based Woodgate Financial Inc. and a proponent of tontine funds, blames lack of advisor education for the funds’ lack of success.
“A significant swath of Canadians need income security in retirement, and the loss of an option in the marketplace is not a positive,” he says. “As advisors, we owe it to our clients to educate ourselves on these issues.”
He notes that American investors, who, for the most, part don’t have defined-benefit pension plans, have a vast array of longevity risk products at their fingertips.
But in Canada, he says, the investment industry emphasizes income portfolios, with dividend-paying stocks and higher yields, as the solution for longevity risk.
“There’s no longevity protection [in income portfolios] as it’s academically proven that dividend-paying stocks do not outperform the benchmark,” Mr. Pereira says.
Annuities have long been part of the insurance domain but the investment industry has been slow to offer other options partially because of Canadian tax law limitations, he adds.
As tontine funds are relatively new, advisors may have been wary to adopt them for clients. Had the products been around more than 10 years, for example, advisors may have started to see the financial benefits, Mr. Pereira says. That’s because the more time passes, more of the yield will be made up of mortality credits, he notes.
“That’s the money left behind by people who left the pool, either through death or redemption,” he says. “So, the people who are still in the pool benefit and get the upside.”
Purpose Investments’ longevity pension fund, now the only tontine in the Canadian marketplace, has about 500 investors and almost $16-million in AUM, says Fraser Stark, Purpose’s head of the Longevity Retirement Platform.
“We always knew a risk pooling element in a retail fund was going to take time to catch on,” he says. “While we want more traction, we’re proud of what we’ve achieved so far and look forward to seeing that growth.”
Mr. Stark hopes to see more innovation around lifetime income from the investment industry. But he’s not surprised some investors are unsure about longevity pools. People purchase far fewer annuities than expected partly because they want to leave an inheritance for their loved ones.
What advisors often miss is that clients can make a longevity risk product a small portion of their assets or their primary income in retirement – it’s not an all-or-nothing proposition, Mr. Stark says.
Som Seif, Purpose Investment’s chief executive officer, said in a statement that Canadians will need a lifetime income product to complement their other investments, and the firm is “fully committed” to its product.