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Greenwich Associates: Canadian institutions adjust portfolio strategies after asset decline, more to invest in alternatives

Monday, April 05, 2010
Opalesque Industry Update – Canadian institutional investors are said to be shifting portfolio strategies after a 17% year-to-year decline in asset values from 2008-2009. A report by Greenwich Associates, a Stamford, Connecticut-based consulting firm, showed that funding ratios among Canada’s largest pension funds declined to 82% from 94%, while Corporate funds saw their reported funding levels decline from 102% in 2008 to 89% in 2009, and funding levels for public sector/provincial plans fell to 90% from 95%.

According to the report, Canada’s pension funds adopted an increasingly conservative strategy amid the turbulent markets in 2008 and 2009. A combination of declining equity valuations and proactive shifts in portfolio asset mixes brought down institutional allocations to domestic equity to 16.7% of total assets in 2009 from 18.7% in 2008.

It added that at least 40% of Canadian plan sponsors disclosed in 2009 they would make substantive changes in their asset mixes in the coming 12 months, up from 31% in 2008. If the plan pushes through, the changes will result in additional reductions to domestic equity allocations. Some 17% of Canadian funds said they would significantly reduce allocations to local stocks; only 5% plan to increase them. It appears much of the cash moved out of domestic equities will be invested in alternative asset classes, the report said.

However, Greenwich noted that the proportion of Canadian institutions using a manager for EAFE/international equities increased to 76% in 2009 from 68% in 2008, and the share of funds using U.S. equities increased to 72% from 69%.

There is also a growing trend among Canadian institutions to invest in alternative assets, including private equity, hedge funds and infrastructure. 4% of funds plan to hire in each of hedge funds and private equity, the latter share representing a decrease from the 6% of funds that reported plans to hire a private equity manager in 2008.


Other news from Canada
Meanwhile, a report from Financialpost.com showed that several cash-strapped states in the U.S. have relaxed rules on casino operations and Canadian hedge funds are ready to cash in. Toronto-based Clairevest Group Inc and its U.S. development partner, Lakes Entertainment Inc. of Minneapolis, Minnesotta, are planning to take over a state-owned casino resort in Mulvane, Kansas, after Harrah Entertainment Inc., which originally won the $500m project, backed out.

Last month, Toreigh Stuart, CEO of Man Investments Canada Corp., told Nationalpost.com that the investment landscape in Canada had changed as hedge funds were being repackaged, repurposed and sold in a format accessible to Canadian retail investors. As part of this shift, hedge funds are becoming subject to the same stringent regulations required of mainstream products, such as mutual funds.

And a recent research paper entitled “The Great White North,” which concluded that Canadian hedge funds outperformed their global peers, has been awarded the 2009 AIMA Canada – Hillside Research Award in early March.

– Precy Dumlao


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