A fundamental change is underway in the area of global investment management for retirement, and an overhaul of the Canadian pension landscape is needed in order to meet future challenges, according to one expert.
“We’ve seen a dramatic shift in this market over the last few years,” said Gregory Chrispin, managing director of State Street Global Advisors at PR firm Fleishman-Hillard’s Toronto office on Tuesday. “It was triggered by market events, but I would say the solutions that are being implemented are not just in response to those events. People are trying to restructure their pension funds so that they are sustainable and valuable for a long period.”
He added that because the large pension surpluses of the ‘90s are gone, pension managers are taking a longer view and are being more conservative with their portfolios.
Chrispin explained that the trend for pension plan asset allocation has focused recently on fixed income, especially with foreign issuers and the emergence of what he calls maple bonds, which are non-domestic issuers issuing in the Canadian market. He attributes these bonds to the resurgence of a credit culture here in Canada.
Chrispin also highlighted currency risk and liability-driven investment as increasingly popular alternative investment classes for pension plans as they attempt to “de-risk” their portfolios of greater importance. “Seven years ago, very few people would even look at currency hedging as an asset class,” he said. “Well the environment has changed, because every basis point counts.”
Although the Canadian pension industry is trending toward defined contribution plans, Chrispin said it’s happening at a slower rate compared to other countries, which is good for the market and the average worker. The fact that we’re dominated by defined benefit plans, he explained, can be viewed as a good thing from the employee perspective as there’s a trend toward investment risk transfer to the employee.
With regard to pension reform, Chrispin explained that the regulatory environment in Canada is fragmented along provincial lines and can be viewed by certain companies as a barrier to entry.
He said that the Canadian Institute of Actuaries is currently working on that with their call for national pension summit, but it is a slow process with no clear timeframe. “There is recognition that some of the issues need to be addressed, and people recognize that pension reforms are necessary,” he said. “Having said that, there’s a lot of consultation that needs to take place.”
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