Pension funds increasing in-house asset management: survey

Canada’s pension funds are shifting asset management functions in-house while becoming more strategic about oversight of external managers, according to a new survey from CIBC Mellon.

It found pension funds are increasing the portion of assets and investment activities managed in-house to 28 per cent from 22 per cent, with the majority of pension funds identifying real estate (58 per cent) and equities (48 per cent) as the two asset classes that will see the biggest shifts to in-house management over the next 12 to 24 months.

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However, the survey also found Canadian pension funds continue to see significant value in leveraging external managers to deliver returns across key asset classes. Currently, 98 per cent of pension plans currently work alongside other limited partners to invest in funds, while 78 per cent hold co-investments. Other options identified in the survey include joint ventures (62 per cent), external manager programs for specific asset classes or geographies (84 per cent), direct investments (62 per cent) and funds of funds (42 per cent). The survey also noted while many funds continue to outsource significant chunks of their portfolios, only 34 per cent have an outsourced chief investment officer.

In a press release, Alistair Almeida, segment lead for asset owners at CIBC Mellon, said many Canadian pension funds take a strategic approach to asset management. “Where appropriate, they operate with in-house teams and this appears to be increasing. Elsewhere, they’re pursuing partnerships and collaborations, as well as full-scale outsourcing arrangements. There’s no one-size-fits-all arrangement.”

The survey also found pension funds plan to significantly alter the mix of their portfolios. While 86 per cent plan to reduce their exposure to infrastructure over the next 12 to 24 months, 90 per cent will increase allocations in private equity in 2021 and 42 per cent expect to raise their real-estate exposures. And while 86 per cent expect to invest more in fixed-income assets in the short term, 36 per cent plan to increase their allocations to equities and 20 per cent anticipate a reduction in the size of their cash holdings.

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