- On solid ground now, but seeking ways to generate future returns -
TORONTO, Oct. 22 /CNW/ - New research from Pyramis Global Advisors,
Fidelity Investments' institutional asset manager, shows that Canadian pension
plans are faring well in volatile markets. However, they are growing more
concerned about how they will continue to generate returns in today's low
return environment and volatile markets.
The second annual Canadian Defined Benefit Research from Pyramis Global
Advisors surveyed plan sponsors from across Canada on their current investing
strategies, their plans for the future, and how they are reacting to the
changing investment landscape. This national research study, entitled,
Canadian Defined Benefit Plans at a Crossroad, surveyed corporate and public
defined benefit (DB) plans with over $200 million. Together they represent
over $427 billion in assets.
"Many Canadian pension plan sponsors are at a crossroads on where they
are going with their plans. While they have benefited from strong Canadian
equity markets over the past few years, they are now faced with challenges and
tough choices," said Peter Chiappinelli, Senior Vice President, Asset
Allocation Strategies, Pyramis Global Advisors. "Plan sponsors are debating a
number of major decisions from how much Canadian equity to have in their plan,
to if they should utilize alternative investments and finally how they will
manage risk in these volatile markets."
Funding levels on solid ground with Eastern provinces below national
Overall, Canadian plans are on very solid ground. They have benefited
from the strong Canadian equity markets with five-year average returns of
11.7%(*). Plan sponsors are also reporting that they have very strong funding
ratios with the average funding status at 102.7%. Additionally, the majority
of plans (67%) report that their plans are funded at more than 100%.
There are however regional differences to funding levels with Eastern
pension plans reporting average funding levels of 99.37% which is below the
national average. In comparison, plans in Central Canada did the best versus
their counterparts, reporting funding levels well over the national average
(106.4%) - an interesting finding given the deepening economic slump in
Central Canada. Western Canadian plans were also above the national average
with funding levels at 101.6%.
The positive news is that the vast majority (97%) of existing corporate
DB pension plans in Canada are committed to maintaining their defined benefits
program for their current and future employees. Looking deeper into why plans
are committed to DB, most plan sponsors believe in the ability of DB plans to
provide an adequate level of retirement savings for their employees. Plan
sponsors also believe that DB plans offer superior recruitment and retention
for today's workforce.
What is keeping plans sponsors up at night? Corporate versus Public
When asked for their top concerns, nearly a quarter of plan sponsors
(23%) name the low return environment as their number one worry. Risk
management is another major area of focus (20%) along with market volatility
(18%), as plan sponsors look to maintain their positions in the face of choppy
There was a divergence in what corporate pension plan sponsors are
worried about versus public plan sponsors. The low return environment is at
the top of the list for corporate plan sponsors along with their funded
status. Today's volatile markets add an additional burden for private sector
funds as they must struggle to manage their assets and liabilities without
negatively impacting their firms' financial statements.
For public plans, risk management is their main focus. While public
sector funds, which tend to be larger than corporate plans, are more able to
access more alpha-generating asset classes and strategies such as
infrastructure and private equity, they still need to ensure they can manage
the new risks associated with them.
Both corporate and public plan sponsors are paying close attention to
pension reform. Many plan sponsors continue to view the regulatory environment
as a major barrier to the health of their plans, especially as they grapple
with poor market returns and other risks looming on the horizon. Corporate and
public plan sponsors diverge on the pension reforms they would most like to
see implemented. One-third of corporate plan sponsors want clear title on plan
surpluses, while a further 22% want to extend the solvency deficit
amortization periods. Public plans are most interested (28%) in being able to
raise or remove limits on accumulate surpluses while a further 24% want
restrictions on investments to be loosened. Harmonization of legislation
appears to be less of a concern, with only 12% of all plans indicating that
the patchwork of rules across the provinces is a major area needing
Choosing alternative roads
Pyramis' research also shows that, while Canadian pension plan sponsors
are interested in using alternative investments, many are facing challenges in
utilizing these solutions. As plan sponsors look to the future with today's
low return environment, many plan sponsors are examining the role that
alternative investments can play in helping generate higher returns.
"Despite the positive role alternatives can play in helping plans
diversify their returns and reduce risk, Canadian plans have not adopted
alternative investments as much as their U.S. counterparts," said
Chiappinelli. "Many Canadian plan sponsors report that their investment
guidelines do not allow the use of alternative investments or shorting. As
well, many plan sponsors indicate that they need more education on alternative
An alternative asset class that continues to be a main area of focus for
Canadian plan sponsors are extension strategies (commonly known as 130/30)
with 46% of public plans and 26% of corporate currently using or considering
using these strategies. While the majority of plan sponsors don't consider
130/30 to be alternatives, plan sponsors have still run into challenges
implementing these strategies. Among the top reasons for not considering
130/30, plan sponsors indicate that it would be too difficult to explain these
strategies to their pension committee.
A common concern voiced by many plan sponsors regarding using
alternatives is that they believe risk management is more challenging than
with traditional asset classes.
"A big focus for plan sponsors going forward is going to be risk-taking
it on, measuring it and managing it. A key finding of our research is that a
large majority of plan sponsors don't think that today's risk tools are
adequate when it comes to dealing with alternative investment strategies,"
added Chiappinelli. "Clearly there's room for another rethink of the role risk
management plays in today's pension portfolios."
(*) Returns as of December 31, 2007
ABOUT THE SURVEY AND CANADIAN INSTITUTIONAL INVESTMENT NETWORK (CIIN)
Canadian Institutional Investment Network (CIIN), a Rogers Publishing
Ltd. product, is an online searchable database of over 1,800 listings on
Canadian pension funds, consultants and money managers. CIIN, formerly
Canadian Pension Fund Directories, has been serving members of the
institutional investment community for 20 years. For more information visit
Rogers Publishing, a division of Rogers Media, produces many well-known
consumer magazines such as Maclean's, Chatelaine, Flare, L'actualité and
Canadian Business, and is the leading publisher of a number of industry,
medical and financial publications. Rogers Media's various publishing and
broadcast properties are also integrated with their own popular web sites.
Rogers Media is a division of Rogers Communications Inc. (TSX: RCI; NYSE:
RCI), a diversified Canadian communications and media company. For further
information about the Rogers group of companies, please visit www.rogers.com.
ABOUT PYRAMIS GLOBAL ADVISORS
Pyramis Global Advisors, a unit of Fidelity Investments, is an investment
management company focused on serving institutional investors such as
corporate and public retirement funds, endowments, foundations, other
institutions. Pyramis offers U.S., Canadian and European investors offers
active and risk-controlled domestic equity, international equity, fixed-income
and alternative disciplines. At September 30, 2008, assets invested in those
disciplines totaled approximately $148.5 billion.
For further information:
For further information: Chris Pepper, Director, Corporate Affairs ,
Office: (416) 307-5388, Mobile: (416) 795-7762, Email: email@example.com