Canadian pension funds are seeing significant cost savings from in-house asset management but are still relying on external managers, according to a new survey from CIBC Mellon.
It found among funds that have taken asset management in-house, 66 per cent said they achieved savings. Of those, 91 per cent reported more than 10 per cent savings and 35 per cent saved more than 20 per cent. And among funds using external managers, 86 per cent intend to look for lower fees over the next 12 months.
Almost two-thirds (64 per cent) of pension managers said the clear strategic alignment of long-term objectives was one of the most important advantages of in-house management and 56 per cent said in-house teams have a better understanding of overall asset allocations.
The two main barriers to in-house asset management were internal expertise (70 per cent) and technology (60 per cent). And while 34 per cent of pension funds cited recruitment and retention as a significant challenge to in-house asset management, many are now focusing on incentives to address this issue, with performance bonuses (98 per cent) being the most popular method to retain staff.
The key drivers for using external managers were better projected returns (58 per cent), access to broader expertise (56 per cent) and the complexity of the fund (52 per cent). One-fifth (20 per cent) of the funds surveyed have more than 100 staff employed directly in asset management.
“Canadian pension plan sponsors and fund managers remain relentless in their pursuit of stronger outcomes for stakeholders,” said Alistair Almeida, segment lead for asset owners at CIBC Mellon, in a press release. “Plan members, boards and trustees demand sustainable returns, dependable operations and attentive service to plan members, all while reinforcing sharp focus on compliance and sound governance.”
A previous CIBC Mellon survey 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.