Canadian Pensions Up Equity Holdings, Grow Overall

(September 13, 2012) – Risk parity may be the strategy du jour, but over the last year Canadian pension funds have held their fixed-income allocations steady while boosting equity holdings by 9%, according to new figures from Statistics Canada. 

In total, the country’s public and private pension funds comprise a C$1.095 trillion ($1.129 trillion) asset pool, which is second only in size to that of the chartered banks. Over the last four quarters, funds’ aggregate investments have returned 3.5%. 

Including contributions, pension assets grew by 4.1% in the first quarter of 2012, which is the largest gain since the end of 2010. However, investment income and contributions both fell, year-on-year, by 14.6% and 12.8% respectively. 

The recent rise in funds’ equity holdings brings stock allocations nearly equal with fixed-income in the average Canadian portfolio. As of March 2012, 37.2% of pension assets were invested in bonds (down 0.3% from last year), and 32.4% in equities. 

Real estate and alternatives represent a much smaller portion of Canada’s cumulative pension assets—1.1% and 17.9%, respectively—but that’s where most of the recent action has been. Allocations to real estate rose 2.2% in the first quarter of 2012, and appeared to continue on that upwards trajectory. 

This summer, several Canadian mega-plans made a serious push into foreign real assets, buying up property, infrastructure and commercial real estate. For example, the Ontario Teachers’ Pension Plan created the special purpose vehicle “Goliath” to make a final £73.1 million ($118.1 million) bid for a London Stock Exchange-listed chain of indoor sports facilities. In July, the Canada Pension Plan Investment Board decided to sink $355 million into seven residential properties in San Francisco, Chicago and Dallas, seeking long-term, stable investments in the volatile environment. The decision by the board to invest in US apartments followed the fund’s completion of its largest real estate investment to date: a $2 billion joint venture with Lend Lease Corp. to develop and retain two office towers.

These major property purchases are not, of course, reflected in Statistics Canada’s latest batch of data, which covers up to the end of March. The quarterly surveys are mandatory for every public and private pension fund with more than C$700 million ($717 million) in assets.