We asked four pension plan sponsors for their views on the investment management industry. Here’s what they had to say.
As a plan sponsor, what are you looking for from your money manager?
Terri Troy, CEO, Halifax Regional Municipality Pension Plan: To provide risk-adjusted returns, net of fees, in excess of the mutually agreed-upon benchmark, whether this benchmark is an asset-based benchmark or a liability-based benchmark. To truly act as a fiduciary of trust assets—not provide only lip service. And no negative surprises!
John Crocker, president and CEO, Healthcare of Ontario Pension Plan: HOOPP’s board of trustees has long felt that it’s important for both our investment strategy and investment management to be fully aligned with the income needs of our membership. For that reason, investment management of the fund is fully insourced.
Blair Richards, CEO, Halifax Port ILA/HEA Pension Plan: We require our managers to stick rigidly to their knitting. That’s because the trustees make the strategic decisions, including asset allocation, and thereafter choose managers specific to particular classes. We need to be sure that a manager does what they told us they were going to do and that any deviation is communicated to us on a timely basis.
Brian Smith, assistant deputy minister, Public Employee Benefits Agency: Our expectations have not really changed. We expect that the managers we retain will continue to meet or exceed our performance benchmarks.
Because of the high market volatility, are you looking for more value from your money manager? If so, what additional services has your manager provided?
TT: No. At times, markets will experience higher-than-normal volatility and, at other times, lower-than-normal volatility. The value proposition should not change, since performance is viewed in multiple market cycles. I value succinct, timely and relevant discussions with investment managers at all times.
BS: We are not looking for more as a result of the volatility, but we expect that the managers will continue to provide the performance that we have had. We really haven’t asked our managers to provide more value.
What are your challenges in light of the volatility, and how does the investment management industry alleviate your concerns?
TT: The primary challenge for us is the requirement to fund solvency deficits at a time when market volatility is high; other provinces have exempted similar plans from doing so on a permanent basis. It is an unnecessary use of both plan members’ and taxpayers’ funds. I value investment managers who bring forward ideas to improve risk-adjusted returns, net of fees.
JC: With a liability driven investment strategy in place, the majority of HOOPP’s assets are in fixed income investments. This has helped us out in periods of volatility—as an example, in 2008, HOOPP limited its losses to under 12% and rebounded in 2009 with more than 15% in gains. Some plans lost 30% to 40% in 2008 and did not fully recover in 2009. We want enough growth to ensure that our liability to members—their future pension benefits—is covered.
BR: Pension plans don’t typically enjoy volatile markets, though there may be short-term advantages to capture. The investment management industry responds well to developments by creating and implementing new products and services—such as target date funds or liability driven investing strategies—designed to meet a plan’s longer-term goals.
BS: The greatest challenge is to continue to believe in the statement of investment policy and not begin to question it because of the volatility. The policies are long term in nature and will serve us well in the long term.
Brooke Smith is managing editor of Benefits Canada. brooke.smith@rci.rogers.com
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