By Joel Kranc

Global markets in the first half of 2022 proved to be some of the worst in nearly half a century. The Russian invasion of Ukraine, which occurred in February, kicked off a series of events of supply chain, labour market, inflationary and energy-related market disruptions that affected investors — especially institutional investors who have their hand in many areas around the world.

According to the Northern Trust Canada Universe, the median Canadian pension plan was down 8.8% in the second quarter and further down 14.5% in the first half of the year.

Markets were also forced to digest the decision of central banks around the globe looking to fight inflation and raise interest rates. This uncertainty, which remains today, has pushed stocks into negative territory.

For example, Canadian equities were down 13.2% for the most recent quarter, with health care, IT and materials posting the weakest returns. International markets, measured by the MSCI EAFE Index, were down 11.5% for the quarter and MSCI Emerging Markets were also down 8.4%.

The Canada Pension Plan Investment Board (CPP Investments) ended its first quarter of fiscal 2023 on June 30, 2022, with net assets of $523 billion, compared to $539 billion at the end of the previous quarter.

CPP Investments president and CEO John Graham remarked that markets are now experiencing a downturn not seen in 50 years. “Financial markets experienced the most challenging first six months of the year in the last half century, and the Fund’s first fiscal quarter was not immune to such widespread decline,” he said.

“However, our active management strategy – diversified across asset classes and geographies – moderated the impact on the Fund, preserving investment value,” he continued. “The uncertain business and investment conditions we noted in the previous quarter continue, and we expect to see this turbulence persist throughout the fiscal year.”

The Ontario Teachers’ Pension Plan Board, while remaining in positive territory for the first half of the year posted a relatively lower total-fund net return of 1.2% for the six-month period ended June 30, 2022. Net assets grew to $242.5 billion. In Quebec, the CDPQ generated an average return of -7.9%, significantly above its benchmark portfolio’s return of -10.5%.

“The first six months of the year were very challenging,” said CDPQ president and CEO Charles Emond. “The mix of factors we faced had not been witnessed in several decades: spiking inflation that triggered rapid and sharp interest rate hikes, rare simultaneous corrections in both stock and bond markets, fears of an economic downturn and the war in Ukraine with its many collateral effects.”

Finally, the Ontario Municipal Employees Retirement Sysrtem (OMERS) generated a net investment return of -0.4%, or a loss of $0.5 billion, during the six-month period from January 1 to June 30, 2022.

Over the twelve months ended June 30, 2022, the Plan earned a net investment return of 6.0%, or a gain of $6.7 billion, after reporting a net investment return of 15.7% or $16.4 billion for the 2021 calendar year. Net assets as at June 30, 2022 were $119.5 billion.

According to Blake Hutcheson, OMERS president and CEO, “As everyone has witnessed, the first half of the year was extraordinarily difficult for investors in an environment characterized by ongoing geopolitical challenges, supply chain issues, recessionary threats, and soaring increases to both inflation and interest rates — more rapid than we have seen in decades. These influences combined to create acute stress in the global economic environment, pushing the returns for leading global investment market indices to decline well into the double digits,”

There is some upside to rising rates and the ability of pension plans to navigate through a volatile market. “The most recent quarter served as a reminder of how rapidly markets can shift course. We saw extreme market declines in the early days of the pandemic and now we are experiencing it again in the face of changing monetary policy,” noted Katie Pries, president and CEO of Northern Trust Canada.

“Although rising interest rates create market uncertainty causing a decline in pension assets, higher rates improve pension funding ratios and the overall financial health of pension plans, serving as a cushion through this volatile period,” she added.