The Canada Pension Plan’s (CPP) reserve fund was among the top-performing funds in terms of investment returns during the “boom and bust” era of 2005–2009, but overall global pension fund assets are still below pre-crisis levels, according to an Organisation for Economic Co-operation and Development (OECD) report.
The organization’s July issue of Pension Markets in Focus explains that while rebounding equity prices in 2009 helped pension funds in OECD countries recover roughly US$1.5 trillion of the $3.5 trillion in market value they lost in 2008, assets remain about 9% below December 2007 levels.
For some countries, the recovery is complete. Austria, Chile, Hungary, Iceland, New Zealand, Norway and Poland all posted assets in excess of their pre-crisis levels.
The CPP, which had one of the highest exposures to equity investments in the OECD, earned some of the highest after-inflation returns out of 13 selected OECD countries over the period. The average annual return was 3.8%, second only to Poland’s 4%.
The CPP allocated only 30% of its portfolio to fixed income instruments such as bonds, one of the lowest among the countries studied. Instead, it favoured higher-risk equities, hedge funds and real estate.
However, a high allocation of equities was no guarantee of returns, as Ireland—with an even higher exposure to the asset class than the CPP—ended up with 0.6% average annual loss over the period. According to OECD analyst Jean-Marc Salou, further study is needed to draw conclusions about how greater exposure to inherently riskier equity markets affects public systems.
The study also looked at the performance of private pension plans in 41 developed democratic countries and found that such plans rebounded with an average return of 6.6% in 2009. However, those funds were still 9% below December 2007 levels at the end of last year, meaning they recovered only US$1.5 trillion of the $3.5 trillion loss they endured in 2008.