Pension funds report lower assets and returns for 2002

(April 21, 2003) Canada’s pension industry felt the bear market pinch again in 2002, with assets and returns declining for the second straight year, according to Benefits Canada’s annual survey of the top 100 pension funds. Assets fell nearly 6% last year, the largest decline since the survey was introduced 23 years ago.

The 100 top funds had total assets of $472.9 billion as of December 31, 2002, a 5.6% decline from 2001. None of the top 10 funds managed to increase their assets last year. Investment returns ranged from a high of +2.6% to a low of -9.9%, but the average rate was -6.7%. The average return in 2001 was -0.3%.

By comparison, the S&P/TSX Composite Index fell more than 12% in 2002. “I don’t remember the last time there were two negative years on the TSX,” Jan Neiman, pension manager at Rothman’s, Benson and Hedges told Benefits Canada. “I think that’s been an eye-opener.”

The Ontario Teachers’ Pension Plan remains the largest pension fund in the country, with assets of $65.4 billion, down from $68.1 billion in 2001. Teachers’ vice-president Bob Bertram says underperforming markets have forced pension fund managers to lower their expectations.

“What we don’t see are real returns in the equity market of 7% to 10%, which is what they were in the 1990s,” Bertram said. “We see it more like 3% to 5%, competitive with what you see from a real-rate bond, but not good enough to meet most pension benefits.”

Bertram says a typical pension fund requires a real return of around 5%. “So our problem is when we look at the gap that has opened up between assets and liabilities, and then we look at what’s available to close that gap, we’re having to look for new, less traditional investments than we’ve used in the past.”

Keith Ambachtsheer, president of the Association of Canadian Pension Management, says for pension plan sponsors, it’s now all about risk management. “The reality is that many corporations ran their pension funds as silos, with no connection to risk. The new paradigm makes a connection between these risks.”

The Teachers’ fund has been adjusting its asset mix to deal with risk, Bertram said, reducing its exposure to stocks by 10% in 2002 and moving money into private equity and alternative investments. Overall, the top 100 funds reduced their holdings of Canadian and U.S. equities, as well as cash. Bonds were slightly lower, while overseas equities and real estate were higher.

Benefits Canada and Advisor.ca are both properties of Rogers Media.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca