Canadian Pooled Funds Return 15.8% in 2019

Canadian diversified pooled fund managers posted a median return of 2.6% during the fourth quarter of 2019 before management fees, bringing its full-year return to a robust 15.8%, according to consulting firm Morneau Shepell.

The quarterly performance outperformed the benchmark portfolio by 0.5%; however, the annual return underperformed the benchmark portfolio by 0.2%.

“Both stock and bond markets posted very positive returns in 2019,” Jean Bergeron, vice president of the Morneau Shepell Asset & Risk Management consulting team, said in a statement. “This excellent performance was offset by the stronger Canadian dollar, which scaled down the return in Canadian dollars to 25.2%.”

Fund managers reported median returns of 3.0% for Canadian equities during the fourth quarter, compared with the 3.2% posted by the S&P/TSX Index. For 2019, Canadian equities had a median return of 21.7%, compared with the S&P/TSX Index’ return of 22.9% for the year.

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The S&P/TSX Small Cap Index gained 15.8% during the year, while the S&P/TSX Completion Index, which represents mid-cap stocks, increased 26.1%. The large-cap S&P/TSX 60 Index rose 21.9%.

For the year, foreign equity managers reported median returns of 23.7% for US equities, compared with the S&P 500 Index’s 25.2% return. They saw 18.0% returns for international equities versus 15.9% for the MSCI EAFE Index. Earnings were 20.1% from global equities, compared with the MSCI World Index’s 21.2% return, and 15.2% for emerging markets equities versus 12.9% for the MSCI Emerging Markets Index.

Fund managers reported a median return of 7.1% on bonds for the year, and a median loss of 0.7% during the fourth quarter, which was 0.2% ahead of the benchmark’s performance in both cases.

During 2019, short-term, mid-term and long-term bond indices posted returns of 3.1%, 5.8% and 12.7% respectively; the high-yield bond index returned 8.5%, while the real return bond index increased 8.0%.

“With respect to pension fund actuarial liability, the decrease in interest rates meant that solvency liability also rose significantly during the year,” said Bergeron. “Although pension fund returns were very positive for 2019, on a solvency basis pension fund financial positions improved by an average of only about 1.0% from the beginning of the year.”

The results are based on the returns of approximately 322 Canadian pooled funds managed by nearly 51 investment management firms that have a combined market value of more than C$548 billion ($416.7 billion).

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Tags: Canada, Canadian, Jean Bergeron, median return, Morneau Shepell, pooled funds

South Carolina Gov. Henry McMaster wants to close the $32 billion state retirement system’s defined benefit pension plan and move all new state workers into a defined contribution plan.

“I’m asking that we – at the end of this year – close enrollment in the current defined benefit plan,” McMaster said during his State of the State address last week. “Putting money into an open system like that is like trying to fill a bathtub with the drain open. We must close enrollment first.”

According to the South Carolina Retirement System’s (SCRS) most recent valuation report, the system had unfunded liabilities of just under $23 billion as of July 1. That is up from just under $22.1 billion at the same time the previous year.

McMaster’s budget for fiscal year 2020-2021 includes proviso language that closes enrollment in the South Carolina Retirement System (SCRS) to new members. A new employee eligible to become a member of SCRS after Dec. 31, 2020 would instead join the State Optional Retirement Program (State ORP) administered by the South Carolina Public Employee Benefit Authority (PEBA).

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McMaster said that although adopting the reform will require a “concerted expenditure of political willpower” by the general assembly, he said it pales in comparison to the cost of doing nothing.

“It is time for the legislature to make some hard decisions and implement systemic reforms to correct this problem,” McMaster wrote in his budget. “We must maintain our commitment to the 11.5% of South Carolina’s population that relies on state retirement systems, while protecting taxpayers from bearing any additional financial burden caused by inaction or indecision. That means enacting a date-certain transition away from defined benefit pension plans to defined contribution retirement plans for new state employees.”

The State ORP is a defined contribution retirement plan PEBA administers for employees of state agencies, public and charter school districts, and public higher education institutions in South Carolina. The defined contribution plan participants are solely responsible for their retirement account and they choose how to invest and manage their money.

Like South Carolina, Kentucky proposed a pension reform plan in 2017 that included closing the defined benefit pension and moving new employees to a defined contribution pension plan. An analysis of that proposal released in late 2019 said, however, that the move would have saved the state money in the short term, but would have been more expensive over the longer term.