Markets around the world have been on a wild ride over the last few weeks, but experts say pension plan sponsors aren’t in panic mode.
“It’s business as usual. Plan sponsors are somewhat insulated on this day to day,” says Peter Clarke, managing director, head of Canada, UBS Global Asset Management in Toronto. “Typically, I think most plan sponsors particularly of any size are quite sophisticated.”
The impact on pension funds is obviously short term at this stage, he adds. On Monday, the S&P/TSX Composite Index dropped 605 points and has lost more than 1,500 points over the last week.
Still, the index did manage to regain some ground following the U.S. Federal Reserve’s surprise announcement of a three-quarter point cut in the federal funds rate. The TSX jumped 508.75 points to close at 12,640.88 on Tuesday.
Despite the volatility, there should be no reason to worry, says Paul Zemsky, head of the multi-asset strategies and solutions group at ING Investment Management in New York. “Hopefully the plans and/or their managers and consultants have made long-term estimates of what they think their returns of various asset classes will be and that these are appropriate with what the plan’s long-term vision is.”
Still, the equity market could get a lot worse before it gets better. CIBC World Markets is forecasting that the TSX will hit a mid-year low of 11,000 before climbing back to the 13,000 mark by year-end.
Volatility and markets go hand in hand and plan sponsors are prepared for these types of market fluctuations, explains Peter Muldowney, head of Mercer’s investment consulting business in Canada and based in Toronto.
“Just like when people weren’t panicking when markets were going up 20%+ for four years in a row, right now they’re not necessarily panicking when the markets are declining. Their risk tolerance should be the same today as it was yesterday.”
The recent drop in the market and the credit crunch has also fuelled speculation that the banks helping fund the deal to buy BCE may walk away, sending the stock to as low as $34 in recent days—well below the $42.75 a share being offered by the Ontario Teachers’ Pension Plan-led consortium.
But not everyone expects the acquisition will fall through. “The fact that the market flips for a few days doesn’t affect the underlying value of BCE,” says Steve Bonnar, a principal with Towers Perrin in Toronto. “I think that deal is still going to happen.”
To comment on this story, email craig.sebastiano@rci.rogers.com.