The Pension Investment Association of Canada responded positively to a recent update from the Canadian Association of Pension Supervisory Authorities’ leverage working group.
The PIAC agreed with the CAPSA that pension plans are using leverage more commonly and intensively. Further, it noted a recent development to find leverage being used at the fund level, as leverage has been an embedded part of many asset classes, including equities, real estate and non-recourse, third-party managed funds.
The PIAC emphasized the importance of weighing the risk/reward ratio of using leverage from an overall portfolio perspective and not only from an asset perspective.
As the CAPSA continues its work on leverage, the PIAC suggested it take a principles-based approach to policy development, rather than rules-based, since pension plans are subject to a wide variety of potential situations and objectives.
Canada lacks policy consistency where pension plans are concerned, noted the PIAC, which sometimes results in plans incurring additional costs and employing sub-optimal structuring in order to remain in line with the income tax act requirements on borrowing.