The federal government has given the Canada Pension Plan Investment Board(CPPIB), which manages the pension plans for employees across Canada except Quebec, the green light to increase its use of derivatives.

Since 1998, Section 14 of the CPPIB Regulations restricted the Board’s use of derivatives(that is, investment contracts in which prices depend upon the value of one or more underlying assets such as a swap or futures contract). Derivatives under this regulation had basic purposes such as hedging against risk. With this restriction lifted – effective Feb. 1 – derivatives will play a bigger role in investment opportunities at the Board.

The Board’s initiative to have this restriction removed was twofold: efficient investments and minimal costs. But there should be no negative implications as a result. According to Don Raymond, the Board’s senior vice-president of public market investments, this change in derivatives policy will not generate any greater risk for the CPPIB. He says the Board will maintain its current investing strategy, which is centred on risk management, and will not take any more risk than necessary as a result of the change.

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