Booming economies, rising commodity prices, unprecedented unemployment rates. What more could Canada’s Western provinces ask for? Maybe more workers.

Just like Lucy Ricardo after one of her trademark misadventures in the classic ’50s sitcom, I Love Lucy, there are more than a few players in the financial industry who “have some splainin to do.”

First, there are the rating agencies that issued investment-grade ratings to debt products backed by risky subprime mortgages. There are also the managers who took those ratings at face value.

“A number of money managers are going to have to provide explanations to their clients as to why they owned certain securities,” says Len Racioppo, president and director, Jarislowsky, Fraser Ltd. who participated in a virtual roundtable for this year’s Top 40 Money Managers Report. “We are supposed to be the experts and clients pay us to be so.”

Richard J. Terres, senior vice president, BNY Mellon Asset Management, Canada, echoes those sentiments. “We as money managers owe it to our clients to know the risks involved regarding the securities we own,” says Terres. “This crisis has shown, as most do, that the days of the free lunch are over and further discipline and diligence are required going forward.”

Similarly, pension plan sponsors whose funds are either directly or indirectly exposed to asset-backed commercial paper(ABCP)are going to have to answer some questions of their own—from their boards and their members.

A recent survey by Morneau Sobeco found that just under 4% of the 80 pension funds surveyed across Canada directly hold ABCP, while 15% are exposed to them through mutual funds. Another 20% of the pension funds surveyed don’t know whether or not their assets are exposed to ABCP.

Fortunately, progress is being made. The committee formed in September to oversee the restructuring of approximately $35 billion in thirdparty ABCP announced last month that it expects to have the problem resolved by mid-December.

But what long-term effects will the credit crunch have on the way pension fund assets are managed? That’s exactly what we asked senior representatives of some of Canada’s largest pension money managers for this year’s Top 40 Report. It’s also a question we put to Terri Troy, chair of the Pension Investment Association of Canada, in Viewpoint.

Needless to say, only time will tell how pension investors respond to the most recent turmoil to hit the markets. In the meantime, there will be some interesting conversations taking place in the weeks and months to come.

Don Bisch is the editor of BENEFITS CANADA. don.bisch@rci.rogers.com

For a PDF version of this article, click here.

© Copyright 2007 Rogers Publishing Ltd. This article first appeared in the November 2007 edition of BENEFITS CANADA magazine.

 

Copyright © 2019 Transcontinental Media G.P. This article first appeared in Benefits Canada.

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