Morneau Shepell Ltd. has developed a risk management portfolio, designed to reduce volatility for pension plans.
Traditional pension plan portfolios are heavily invested in equities with a large mismatch between plan assets and liabilities, says Patrick De Roy, partner and national leader of the risk management practice for Morneau Shepell.
Morneau Shepell’s risk management portfolio is based on an investment policy with a target asset allocation different from that of the traditional portfolio. The objective is to reduce risk by better matching liabilities, and investing in alternative strategies that generate returns less correlated with equity markets.
“Since the beginning of the year, bond yields have decreased and equity returns have been negative, resulting in an increase in liabilities and a decrease in the value of the traditional portfolio,” says Jean Bergeron, partner and practice leader for Morneau Shepell’s investment consulting practice.
“As of Oct. 31, 2011, we estimate that a typical pension plan with a traditional portfolio would have seen its financial position deteriorate by about 7% since the beginning of the year. Meanwhile, the Morneau Shepell Risk Management Portfolio would have kept pace with the growth in the liabilities and would have experienced less volatility during the same period.”