Pension plans showing positive results despite challenges for equities

Canadian pension plans eked out a small return of almost 0.4 per cent for the first quarter of 2018, according to CIBC Mellon Global Securities Services Co.

On Friday, CIBC Mellon released the latest report on the returns of 85 corporate, public and university pension plans. It showed 65 per cent of pension plans saw positive results in the first quarter of this year. While Canadian equities were down, with a return of minus three per cent, results were better on the international front. Both U.S. and international equities were up by about 2.4 per cent. As for fixed income, the pension plans tracked in the report saw a modest return of almost 0.2 per cent. Alternative assets did significantly better, with infrastructure up by 5.5 per cent, private equity rising by 5.1 per cent, hedge funds increasing 3.4 per cent and real estate returning 1.9 per cent.

The report follows data from Aon last week that showed median pension plan solvency ratios rose to a post-recession high of 101.7 per cent in April. The result was up by three percentage points from March.

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In explaining the rise, Aon pointed to a sell-off in bonds that pushed up yields and a resurgence in commodities. “The yield surge in April had something to do with the trend line for monetary policy but a lot to do with higher commodity prices and the rising expectations of follow-on inflation,” said Ian Struthers, a partner and investment consulting practice director at Aon in Canada.

“While risk-seeking asset returns in Canadian dollar terms were largely positive or stable, we’ll be watching closely how the uptick in commodities prices impacts equity valuations and plays out in the real economy.”

In contrast to other reports, Aon found Canadian stock were particularly strong, leading all equity classes with a 1.8 per cent return. Similar to other reports, it found strong results for alternative assets, with commodities up 3.2 per cent, global infrastructure rising by 1.9 per cent and real estate returning 1.4 per cent.

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“Trade-related worries still loom large for the Canadian economy and markets, and the continuing rising rate environment is going to complicate the landscape and raises concerns about the durability of global economic expansion,” said Struthers.

“With pension solvency exceptionally strong thanks largely to rising bond yields, plan sponsors should continue to look for ways to lock in gains and mitigate risk going forward.”