Canadian Pension Investments Edge Higher in Q1

The investment returns for Canadian defined benefit pension plans edged higher in the first quarter of 2018, but decelerated from strong gains reported during the last quarter of 2017, according to the $650 billion RBC Investor & Treasury Services All Plan Universe.

“The first quarter of 2018 was full of instability and volatility, with Canadian equities taking the biggest hit,” Ryan Silva of RBC Investor & Treasury Services said in a release. “The healthcare and energy sectors, uncertainty around NAFTA trade negotiations, as well as potential interest rate hikes weighed down the TSX Composite Index and other key indices,” he said, adding that “geo-political concerns, coupled with international trade and interest rate anxieties also impacted global equity returns.”

Returns for Canadian defined benefit pension plans rose 0.2% during the quarter, compared with gains of 4.4% during the fourth quarter of 2017, and returns of 2.9% during the same period last year.

Canadian equities helped temper the returns, falling 3.9% during the first quarter, compared to a 4.2% rise in the fourth quarter of 2017, and an increase of 2.3% for the year-ago quarter. The TSX Composite Index mimicked this trend, with a 9% swing from a 4.5% gain during the fourth quarter of 2017, to losing 4.5% during the first quarter of 2018. This is compared to a 2.4% increase during the first quarter of 2017.

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Global equities rose, but at a slower pace than previous quarters, returning 2% for the first quarter of 2018, compared to 6.1% in the previous quarter. At the same time, the MSCI World Index returned 1.6% during the first quarter of the year, which was down from 5.7% during the previous quarter, and 5.8% for the year-ago quarter.

Canadian fixed income assets edged higher with a return of 0.1% in the first quarter, compared to a 2.2% gain in the final quarter of 2017, while the FTSE TMX Universe Canadian Bond Index returned 0.1% in the first quarter, down from a gain of 2% in the fourth quarter of 2017.

The Canadian dollar was the worst-performing major currency during the first quarter, during which time the US dollar appreciated versus the Canadian dollar by 2.9% due to the uncertainty around trade talks, and its impact on the Canadian economy and monetary policy, according to RBC.

Tags: Canada, Defined benefit (db) pension plans, Pension, RBC Investor & Treasury Services All-Plan Universe

California State Teachers’ Retirement System (CalSTRS) Chief Investment Officer Christopher Ailman said that he and investment staff of the $222.5 billion retirement plan have been meeting with other pension plan officials to discuss a collaborative effort to invest in private markets.

Ailman would not name the pension plans, but told the CalSTRS Investment Committee on Wednesday that senior CalSTRS private market officials have been working over the last year with officials of three public pension plans north of CalSTRS headquarters in West Sacramento, California, on a collaborative private markets investment effort. He said one meeting took place as recently as last week.

While Ailman would not name the pension plans, the two largest retirement plans investing in private markets north of CalSTRS are the $76.5 billion Oregon Public Employees Retirement Fund and the $98.9 billion Washington State Investment Board. Prior to joining CalSTRS in 2000, Ailman was the CIO for the Washington State Investment Board.

In a separate development, Ailman said he met last week at the Milken Global Conference in Los Angeles with officials of three global pension plans in separate meetings to discuss private market collaborative investment efforts.

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“I had three side meetings with other CIOs from other large global funds to talk about this exact issue,” he told the investment committee. Ailman would not offer more specifics on his meetings.

The details of potential collaboration between CalSTRS and other pension plans in private market areas such as private equity, real estate, and infrastructure, haven’t been publicly discussed.

CalSTRS documents presented to the investment committee at its May 9 meeting indicate that CalSTRS is exploring achieving cost-savings by eliminating or reducing the role of external managers in managing private market investments.

CalSTRS paid $792 million in fees to private market managers in 2016, the last full year in which numbers are available.

CalSTRS has been studying alternative private market investment options over the last year. Virtually all of its private market investments now involve some type partnership with an external investment manager.

Ailman has said that reducing costs is key particularly because his investment staff and consultants have projected a lower return environment in the next decade. CalSTRS has approximately $18 billion invested in private equity, $26 billion in real estate, and $1.5 billion in infrastructure investments.

Like many public pension plans, CalSTRS is underfunded, with a funding ratio around 64%.

Ailman said investment staff will explore over the next fiscal year starting July 1, “what are the challenges, roadblocks, and opportunities” in regard to collaborative investing.

“Each step along the way, the [investment committee] will have the opportunity to say, ‘are we ready to go there, do we like that idea, or do we want to scale that back,’” he said.

Tags: CalSTRS, Chris Ailman, Milken Institute Global Conference, Pension, Private Markets