Diversification Steers Canadian Pension Giant’s Ship into the Black

Canada’s huge pension fund saw a small gain during a period where others lost money, changing up its game as it prepares for a future with lower returns.

A 3.6% return for the first nine months of the Canada Pension Plan Investment Board’s fiscal year saw its assets grow to C$368.5 billion ($277.6 billion) at the end of 2018 thanks to private and global investments in countries whose currencies strengthened against a depreciating Canadian dollar, said Mark Machin, the fund’s president and chief executive officer.

He added that the board’s diversified portfolio helped steer the fund away from the year’s equity volatility, partly caused by the Federal Reserve’s interest rate hikes and trade conflict between the US and China. Many an investor in 2018 had either poor or negative returns.

“Broad declines in global public equity markets created a challenging investment environment during the quarter, however our net income increased during the downturn, underscoring the Fund’s resiliency and ability to weather difficult conditions,” said Machin.

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The variety of assets in the fund’s investment portfolio also helped its five- and 10-year returns perform well, at 9.1% and 8.2%.

The fund is also looking great 75 years from now, according to the Office of the Chief Actuary of Canada, which studies the board’s 75-year sustainability rate every three years. For that period, the audit expects the fund to average 3.9% per year.

As the global economy gets later and later in the current cycle, investors are readying themselves for smaller returns than recent years have provided. Machin is no different, but the previous quarter indicates that the Canada retirement organization is a little earlier to the party than its peers.

“I think it’s going to be much more challenging for the next few years,” he said in an interview with Reuters, noting that it will be a “similar story” no matter the space investment professionals look to allocate. “There’s a large amount of capital in the world competing for assets at the same time.”

The fund’s asset mix as of Dec. 31, 2018, included 31.9% public equites, 25.4% real assets, 24.1% private equities, and 22.2% government bonds.

The Canada Pension Plan Investment Board could not provide the individualized performance of each asset class.

Tags: Canada, Canada Pension Plan Investment Board, Mark Machin, Pension, Returns

Imposing a minimum retirement age is apparently at the centerpiece of Brazil’s pension overhaul. The reform plan is ready to be submitted to Parliament, according to Rogerio Marinho, secretary of social security and labor at the Ministry of the Economy.

“Today with the team of President [Jair] Bolsonaro after discussion of the final text of the new pension plan, ready for the debate that will change Brazil,” he tweeted Thursday. Containing pension costs is seen as a way to tackle Brazil’s onerous budget deficits.

The sneak peek on the changes sets the national retirement age from to 65 for men and 62 for women. The economic team initially wanted a universal age of 65, but the president wanted to make the age for women lower, causing them to compromise. Right now, there is no minimum retirement age, per se.

Rather than define Brazil’s retirement minimum by age, the government today counts the number of years one works and contributes to the pension system. For example, if an employee puts money into the structure for at least 15 years, the earliest men can retire is 65 (60 for women). However, if they have contributed for at least 35 years (30 for women), they can retire at any age.

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The average new retiree is about 55 years old. The new laws would see the average man work for 40 years before collecting benefits.

The average man lives to be 71 years old in Brazil, according to the World Health Organization. Women live to be 79.

Bolsonaro’s proposal will head to Congress on Feb. 20.

Brazil’s stock market reacted well to the news, with the Bovespa rising 2.05% after the day’s close.

Bolsonaro was able to attend the two-hour meeting with Marinho, Economy Minister Paulo Guedes, Chief of Staff Onyx Lorenzoni, and Government Secretary Carlos Alberto dos Santos Cruz, after he had been released from a 17-day stay at the hospital earlier in the week. The president had recently received surgery related to a stab wound he suffered on the campaign trail.

The new retirement age limit will gradually increase over a 12-year transition period.

After the overhaul is signed, Bolsonaro is expected to explain all changes via a televised address.

“The President will make a statement to the nation, explaining how this project, this new Social Security will be sent, discussed by Congress,” Marinho said. “We hope it will be approved soon. Brazil needs and is in a hurry to grow again. “

Public debt in one of the largest contributors to Brazil’s weakening economy. The nation’s generous pension system continues to eat bigger chunks of the country’s budget deficit, which is why the reforms are occurring. Due to social unrest and political stalemate, it has been unable to agree on proper reforms.

As the overhaul seemingly occurs, all eyes are on Bolsonaro as he seeks to achieve one of his top campaign promises within his first 100 days in office.

Tags: Brazil, Brazil Pension Reform, Jair Bolsonaro, Pension, Rogerio Marinho