Canadian funds prioritise liability matching

Asset allocation has bumped alternative investments as the top investment issue for Canadian defined benefit pension plans, but asset-liability matching will take the cake in the next three years, according to a study by Towers Watson.

Before the financial crisis, 63 per cent of the fund’s surveyed by the consultant said alternative investments was the top issue, followed by asset-liability matching and ideas to increase returns.

After the crisis the key concern for these funds is asset allocation, with a significant 78 per cent recording this as a top issue. In the next three years they report asset-liability matching, asset allocation and ideas to increase returns as the major concerns.

For those motivated to change their investment strategy because of the crisis, stabilising pension plan costs was the number one reason.

Most of the surveyed funds’ assets remain in equities (an approximate 49 per cent allocation for those funds above $1 billion), but decreasing the equities’ exposure is a consistent theme for those how materially changed their target asset mix. Fixed-income and alternatives are the beneficiaries.

In a separate survey, measuring institutional investment managers’ perception of clients’ concerns, Towers Watson found asset (re)allocation, risk and underperformance remain the top three issues raised by funds.

Managers expect the risk appetite of institutional clients to increase this year.