- Interest growing in global equities and alternative products
including 130/30 -
- Most comprehensive research on the defined benefit industry
released to date in Canada with 157 corporate and public plans
surveyed representing a combined $630 billion in assets -
TORONTO, Nov. 7 /CNW/ - New research from Pyramis Global Advisors shows a
strong commitment from plan sponsors in continuing to offer defined benefit
(DB) plans. Not only are Canadian plan sponsors committed to offering DB
plans, they are actively seeking new ways to generate returns for their plan
members including moving out of Canadian equities and embracing alternative
investment strategies including long/short products (130/30). Pyramis Global
Advisors is a unit of Fidelity Investments that offers investment management
products and services for institutional investors including corporate and
public pension funds.
Conducted by the Canadian Pension Fund (CPF) Directory for Pyramis Global
Advisors, the new research, Exploring New Ground: Key Global Pension
Strategies for Today's Investment Landscape is the most comprehensive study of
the Canadian DB industry ever undertaken in Canada. This national research
study surveyed 157 corporate and public DB plans of all sizes representing
over $630 billion in assets. Survey participants offered insights about their
current investing strategies, their plans for the future, and how they are
reacting to the changing investment landscape.
"Canadian pension funds have come a long way in a very short time and are
well positioned for the future. Less than 10 years ago, many pension funds
were over-exposed to the equity markets and suffered when the markets declined
in the early part of this decade," said Michael Barnett, executive vice
president, Fidelity Investments ULC. "Contrary to many existing perceptions,
our research shows that Canadian pension funds are well funded, solvent and
maintaining the powerful retirement benefits of defined benefit plans for
Commitment to offering DB remains strong - 100% among public plans
When asked, a very clear majority (87%) of open plans indicate that they
are likely to continue to offer a DB plan in the next five to 10 years. Within
this group, 100% of public plans are planning to offer DB plans and 74% of
corporate plans indicated that they will continue to offer these plans.
While Canadian plans say they are on solid ground, they do voice some
concerns for the future. Both corporate and public plans list long-term costs
and risk management as their top concerns (74% and 70% respectively) with
near-term market volatility ranking third on their list of concerns.
"The focus on containing costs and managing risk indicates a strong focus
on ensuring the long-term sustainability of these funds," added Barnett.
Home-country bias: Where plans are invested today and where they are
Canadian pension funds continue to exhibit a home-country bias in how
they invest, with the largest percentage (45%) of their equity investments
held in Canadian companies. Other top allocations include fixed income (34%),
international equities (12%), U.S. equities (12%), and global equities (7%).
"While the elimination of the Foreign Property Rule in 2005 has propelled
plans to invest outside of Canada, the investment shift has not happened at
the rate many predicted," said Barnett. "However, our research shows that
Canadian plans are beginning to increasingly look outside Canada for investing
The majority of corporate and public plans have either implemented or are
seriously considering a reduction in their allocations to Canadian equities
with almost 20% planning to make changes of more than 10% within the next one
to two years. Nearly half are planning a reduction of 5-10% and another third
are planning to reduce their exposure to the Canadian market by less than 5%.
When asked where they are planning to invest, 56% of plans will move from
Canadian equity to international equities including emerging markets and
non-Canadian small-cap. Shifts to fixed income are more modest with only 20%
planning on increasing their fixed income allocations.
The search for returns continues - investing in alternatives increases
As Canadian plans sponsors seek to boost returns and maintain healthy
funding and solvency ratio, many plans report that they are taking on more
active risk in their investments including considering alternative investments
as a way to increase returns with almost three-quarter (74%) of plans
considering using these types of investments in the future. Alternative
investments are defined in the survey as private equity, hedge funds, venture
capital, infrastructure and commodities.
Public plans in Canada have the highest allocation to alternatives at
4.4% versus 1.5% for corporate plans. However both types of plans indicate
that they are likely to increase their use of alternative investing
Beyond investing in alternatives, plans are looking to newer ideas such
as 130/30 (or limited shorting) strategies to generate higher returns. While
26% of plans are seriously considering them, only a slim minority of
respondents are using them today.
Cross border differences and similarities
Pyramis has conducted similar research on the U.S. pension industry,
which highlights some interesting differences and similarities between
Canadian and U.S. plans. Both Canadian and U.S. plans are in a much better
state than they were five years ago. While Canadian plans have higher
comparative allocations to fixed income, they have also been able to
participate in the strong equity markets Canada has enjoyed in the past five
years. Conversely, the research shows U.S. plans have higher allocations to
domestic equities which left them more exposed to the weaker U.S. markets over
the same time period.
The research also shows that Canadian public plans are most similar to
U.S. corporate plans as both are well funded, solvent and more open to
adopting innovative investing strategies such as 130/30. In the U.S. more
corporate plans are using 130/30 strategies versus public plans. In Canada,
the opposite is true with more public plans utilizing these strategies versus
their corporate counterparts.
"Canadian defined benefit plans are well funded and positioned for the
future," added Barnett. "However, they are certainly not taking a breather.
Quite the contrary, they are working their assets harder, embracing innovative
products and strategies to ensure they don't lose the ground they have
ABOUT THE SURVEY AND CPF
The data was collected by the Canadian Pension Fund (CPF) Directories, a
division of Rogers Media. The CPF Directory began collecting pension fund data
in 1988. It is the only independent source of this data in Canada. Beginning
January 2008, the CPF Directories will be known as the Canadian Institutional
Investment Network when the pension fund data will become, for the first time,
The CPF Directory conducted its annual Canadian Pension Fund Survey
between March and April 2007. After the initial survey process, follow-up
questions designed by Pyramis Global Advisors were fielded between July and
August 2007. The 157 DB pension respondents are representative of Canada - 35%
in central Canada, 34% in the West and 29% from Eastern Canada. For a copy of
the complete report available in December 2007, please visit fidelity.ca.
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, 2007, assets invested in those
disciplines totaled more than $162 billion.
ABOUT FIDELITY INVESTMENTS
Fidelity Investments Canada ULC is the country's eighth largest mutual
fund company and part of the Fidelity Investments organization of Boston, one
of the world's largest providers of financial services. In Canada, Fidelity
manages a total of $42 billion in mutual fund and corporate pension plan
assets. It offers Canadian investors a full range of domestic, international
and income oriented mutual funds. Fidelity funds are available through a
number of advice-based distribution channels including financial planners,
investment dealers, banks, and insurance companies. Fidelity Investments also
administers defined contribution plans and manages defined benefit assets on
behalf of corporate clients across Canada.
For further information:
For further information: Chris Pepper, Director, Media Relations,
Office: (416) 307-5388, Mobile: (416) 795-7762, Email: firstname.lastname@example.org