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Pension Funds

Canadian pension plan execs extol importance of taking calculated risk

Two Canadian pension plan executives on Wednesday agreed on the importance of taking calculated risks in managing their plans.

"Risk management is in the eye of the beholder," said Derek Dobson, CEO and plan manager of the C$11 billion ($8.4 billion) Colleges of Applied Arts and Technology Pension Plan, Toronto, during a workshop at the Association of Canadian Pension Management national conference in Quebec City. "How we view risk is that we take measured, calculated risk. We won't bring value to shareholders unless we take on some risk."

Louis Beaulieu, co-head of asset allocation and head of risk at the C$13 billion Desjardins Group Pension Plan, Montreal, said his plan's risk management not only focuses on the level and volatility of contributions but also limiting the impact of the pension plan on its capital ratio.

Desjardins is regulated under Canadian banking rules requiring that it maintain a minimum 8% ratio of high-quality capital to risk-weighted assets.

Mr. Beaulieu said the Desjardins plan uses a "dynamic" asset allocation strategy that allows plan officials to be flexible in how much it has in liability-hedging strategies and in performance-seeking assets. That includes up to 25% of assets in a bond overlay strategy along with its overall 40% in fixed income, and 30% both in equities and real assets.

"Our flexibility is based on our financial situation and our demographics," Mr. Beaulieu said.

CAAT's Mr. Dobson spoke on risk governance, saying that the pension fund's board spends half its time dealing with risk as a strategic issue. However, times have changed in how the board looks at risk; immediately after the 2008-2009 financial crisis, risk was looked at in terms of more short-term survival, "and now we're talking about 2050 or 2075 in terms of long-term risk," Mr. Dobson said.

But while the time frame of viewing risk has changed, Mr. Dobson said, the key risks at CAAT — calls to move plans to defined contribution, changes in actuarial bond rates, fixed contribution rates and the elimination of early retirement — are the same as they were eight years ago.

Mr. Dobson said the introduction this year of its DBPlus pension plan for part-time and non-CAAT members does not change its overall risk view as the assets in both the new plan and traditional CAAT are commingled with the same asset allocation.