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Canadian pension funds are the most pessimistic in the world about coming market upheavals, reporting in a new global pension survey they anticipate market bubbles and crashes will become more frequent in the future.
A survey of 811 pension fund managers by Pyramis Global Advisors, the pension asset management division of financial giant Fidelity Investments, shows Canadians are concerned about future market volatility, while fund managers in Europe and Asia strongly believe market volatility will decrease in the long term.
“After years of strong equity returns and below average volatility, institutional investors want to keep their winning streak going,” said Pam Holding, chief investment officer, Pyramis. “Our global survey shows that while the outlook on volatility varies greatly by region, institutions worldwide largely agree that they can continue to grow their portfolios and improve funded status.”
Significant Regional Differences
The Pyramis survey identifies regional differences across such topics as: expectations for market volatility, perspectives on alternatives, investment objectives and investment opportunities.
Market Volatility Expectations
Outside the U.S. and Canada, volatility expectations over the long term are quite low with a decrease in the frequency of boom/bust cycles expected in Asia (91%) and Europe (79%). Only seven percent of U.S. institutions expect volatility to decrease, while 42 percent expect an increase in volatility. This trend continues across North America with only 10 percent of Canadian plans expecting a decrease in volatility, while 60 percent foresee an increase.
While market volatility remains a top concern in Europe and Asia, U.S. institutions are expressing less worry about capital markets than years past. Europe also remains concerned about a low return environment, while Asia is focused on regulatory and accounting changes and Canada is focused on risk management. The top concern for U.S. plans is current funded status (28%), with a majority of pensions intending to improve it.
Perspectives on Alternatives
While the use of alternative investments is still rising rapidly in the rest of the world, use of liquid and illiquid alternatives appears to be slowing among U.S. institutions.
Among respondents planning an allocation increase to illiquid alternatives over the next one to two years, Asia leads the way with 79 percent, followed by Europe (57%) and the U.S. (22%).
Agencies/Canadajournal
