New technology, market volatility, and stakeholder pressures will create opportunities as well as challenges
By Ed McCarthy
The new year has arrived with multiple challenges for Canadian pension plans: a lingering pandemic, equity markets at record levels and the possibility of interest rates moving higher. We asked several industry thought leaders to share their insights on what the new year might bring.
CAiP Forum: What do you see as the major potential influences on Canadian pensions in 2022?
Alistair Almeida
Segment Lead, Asset Owners
CIBC Mellon
Alistair Almeida
Across the spectrum of pension investment stakeholders, perhaps the most dependable constant will be rising expectations – for performance, efficiency, outcomes, compliance, timeliness, risk mitigation and a multitude of other factors in the face of rising inflation and a lasting pandemic. Pension plans and their service providers face a demand for change that has only been accelerated by market turmoil, disruption, and volatility – as well as by exciting opportunities, rapid developments in technology, and fresh strategic opportunities. The need for more comprehensive data – presented in a convenient and digestible way – will increasingly be at the heart of pension, investment, and operations processes. We expect the many rising challenges and opportunities to drive difficult strategic decisions about how each organization will achieve success, including accessing the necessary technology and talent to succeed. We are seeing clients competing aggressively for talent, working with specialist consultants, and looking to outsourcing providers to access skill sets that they don’t intend to hire or build in-house.
Maxime Aucoin
Executive Vice-President and Head of Total Portfolio
CDPQ
Maxime Aucoin
The proverbial “60/40” of equities and bonds has a low probability of meeting the needs of many plans over the coming decade and liability matching at such low rates is certainly less compelling. These challenges will continue to affect the appetite of investors for certain asset classes as they adapt their portfolio construction. Key questions to consider will continue to be around risk appetite, interest-rate and inflation sensitivity and the use of leverage to achieve these goals.
Increased stakeholder pressures on institutional investors will likely continue in 2022 on key ESG [environmental, social, governance] themes. For many, the challenge will be to internalize and adapt their organizations to integrate ESG considerations in their investment processes (e.g.: measurement, engagement, incentives, culture). This has certainly been a key focus of CDPQ over the last 3-4 years and will continue to be so in 2022.
David Ross
Managing Director, Capital Markets Group
OPTrust
David Ross
Given the current macroeconomic environment, 2022 is likely to be a challenging year for all investors, including Canadian pension plans. Risks around inflation will continue to loom large. While we may be near a peak in headline CPI, core inflation is likely to remain in ranges we haven’t experienced for two decades. This makes central bank efforts at policy guidance tricky and will likely have investors navigating from a world of low volatility and high liquidity to the exact opposite. Canadian pension plans will also continue to incorporate climate change into their portfolio construction, with members keen to see their plans participate in meeting this global challenge. The rapidly changing landscape of digital assets and the application of blockchain technologies also creates new challenges and opportunities for pension plans to incorporate into their portfolios.
Ed McCarthy is a longtime financial writer and author of three books, including “Foundations of Computational Finance with MATLAB.”
