Surging Domestic Equities, Bonds Buoy Canadian Pensions’ 5% Gain in Q3

Spurred by strong performances by both equities and fixed-income investments, Canadian pension funds reported robust returns in the third quarter of 2024, as the median plan returned 4.8% during the period and 8.4% year-to-date, as of September 30, according to the Northern Trust Canada Universe.

The investment performance is a sharp turnaround from the average gain of 1.1% during the second quarter and a 3.7% loss in Q3 2023.

“During the third quarter impressive returns across both stocks and bonds were observed as the headwinds felt by monetary policy showed signs of moderating,” the Northern Trust Co. Canada stated in a release. “Equity markets marched higher on the heels of the [U.S. Federal Reserve Board’s] first interest rate cut since 2020, with Canadian equities leading the path and posting a double-digit return.”

Canadian equities, as measured by the S&P/TSX Composite Index, returned 10.5% during the third quarter, as all sectors tracked by the index registered positive returns, with real estate, financials, utilities and health care leading the way. The strong gains were buoyed by the Bank of Canada cutting interest rates twice during the quarter, as it deemed excess supply in the economy was weighing down inflation.

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Meanwhile, U.S. equities, as measured by the S&P 500 Index, returned 4.5% in Canadian dollar terms during the quarter. Ten of the 11 sectors measured by the index posted positive returns, with the energy sector the outlier: It took a loss in the period.

Emerging markets equities, as tracked by the MSCI Emerging Markets Index, produced a strong 7.5% return in Canadian dollars for the quarter, with most sectors seeing gains, particularly the consumer discretionary and health care sectors. The performance was attributed to factors such as the huge stimulus plan announced by China’s central bank, as well as the Reserve Bank of India holding interest rates steady to rein in inflation. The information technology and energy sectors lagged behind the other sectors and posted losses, Northern Trust reported.

International developed markets, per the MSCI EAFE Index, rose 6.0% in Canadian dollars, led by real estate as the top performer, with the energy sector once again at the opposite end of the spectrum.

“As major central banks around the globe seek a path to neutrality, Canadian pension plans remained in solid financial form supported by healthy solvency ratios,” Northern Trust Canada President and CEO Katie Pries said in a statement. “Throughout the interest rate journey, plan sponsors exercised vigilance through the lens of balancing risks and adopting sound strategies that position plan investments for a successful and sustainable retirement future.”

Canadian Pensions Returned 2.5% in the First Quarter

Median Canadian Pension Plan Loses 3.7% in Q3

Tags: Canada, Katie Pries, MSCI, Northern Trust, Northern Trust Canada Universe, Pensions, S&P/TSX Composite Index

Art by Irene Servillo

Pension funds must foster a collaborative environment—both across internal departments and with industry peers—to defend against growing cyberthreats, sources share.

“Cybersecurity, identity theft, hacking into our systems—they are all top of mind for public pension plans,” says Hank Kim, executive director and counsel for the National Conference on Public Employee Retirement Systems, a trade association for public pension funds. “There is a constant dialogue, including at industry conferences, held on these topics [so we are] on top of the latest threats and countermeasures to these threats.”

In addition to his role at NCPERS, Kim is vice chair of the $2.2 billion Fairfax County Uniform Retirement System. He notes that pension funds are coordinating efforts across their legal, communications, information technology, benefit services and broader administration teams to determine how to best defend against cyberattacks.

In fact, NCPERS acts as a resource for member plans, who use its platform to connect with peers, share concerns and sometimes crowdsource solutions to cyberthreats, Kim says. He says data theft of personally identifiable information is a top concern.

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“To the extent that plans are custodians of PII, they want to make sure that is secure,” Kim notes. “Bad actors can pose as some of their members to illegally change benefits to go from the rightful beneficiaries to themselves.”

Types of PII that pension funds would typically maintain include Social Security numbers, addresses, names and financial account information needed to pay or administer member benefits.

In phishing attacks, scammers often use emails—or sometimes text messages or phone calls—to trick individuals into sharing sensitive information, like passwords or financial data.

Laura Arnott, director with cybersecurity expertise at Vigilant Compliance LLC, a firm serving the investment management industry, says phishing scams remain a top cyberthreat across industries—with pension no exception, given they collect participant data.

Pension funds “have lots of personal data, and that’s what the attackers are after,” Arnott exaplins. “PII, that kind of data … that’s what they’re able to monetize.”

Types of Threats

Last year, the country’s two largest pension funds, the California Public Employees’ Retirement System and the California State Teachers’ Retirement System, experienced data breaches after hackers targeted a cybersecurity vendor for both plans, according to a report by The Sacramento Bee.

The breach, carried out by a ransomware group, ultimately exposed the personal data of a combined 1.2 million retirees and beneficiaries, the report stated.

Arnott notes that while ransomware—malware that encrypts critical files or renders IT systems unusable—is certainly a concern for pension funds, phishing scams are still the more prevalent attack method, especially as scammers get better at making emails look like legitimate messages from trusted sources.

In phishing scams, “attackers are typically trying to get the credentials of an individual, then get into a system and move around in that system,” Arnott says. “Phishing is still extremely prevalent, and it seems to be getting more and more realistic.”

Cyberinsurance

In an attempt to reduce the financial burden associated with cyberattacks, many businesses and organizations have, in the last decade or so, begun purchasing cyberinsurance, according to Kim. However, it is still debatable whether such insurance is accessible for the average pension fund.

“The consensus is: To the extent that there is a market for cyberinsurance, [pension] plans think it’s a good thing to have,” Kim says. But, he adds, “from the years just preceding COVID, with all the ransomware attacks that occurred, the cyberinsurance market has gone completely upside down. It’s very difficult to get cyberinsurance.”

In the early to mid-2010s, it was fairly easy to get insured, because “insurance companies knew there was a threat, but there weren’t many claims made,” Kim explains. “In or around 2015 and 2016, there were a lot of ransomware attacks,” which contributed to shifts in the insurance industry.

Today, cyberinsurance providers charge “astronomical premiums” and require much more proof that the insured will have an appropriate defense in place to prevent breaches, Kim says.

One of NCPERS’ affinity programs offers cyberinsurance to member pension plans, but the process of getting coverage has changed drastically over the years.

“When we first started offering cyberinsurance around 2010, a plan could get insured by answering some basic questions,” Kim says. “That is no longer the case, and even if the plan shores up every weak point, the insurance premium is very, very expensive.”

Tags: cyber-insurance, Cybersecurity, Hank Kim, National Conference on Public Employee Retirement Systems, NCPERS