GREENWICH, Conn. — European pension funds are focused on reducing the risk profiles of their portfolios in order to improve funding levels, according to Greenwich Associates’ 2007 Continental European Investment Management Study.
More than 30% of all continental European institutions are using some form of asset-liability matching strategy, according to the study of 217 pension funds with a combined e1.2 trillion ($1.8 trillion) in assets under management. About 28% of respondents use absolute-return strategies for at least a portion of their total investment portfolios, while 20% have implemented hedging strategies to manage specific risks such as interest, inflation and foreign currency exposure.
The average funding ratio of continental European pension funds was 118% in 2007 compared with 93% in 2003, the study found.
Compared with their U.K. counterparts, which were not included in the survey, continental European institutions might have lost out on as much as e15 billion in annual investment returns because of their less risky investment approaches, according to the study.
Overall, European funds’ equity allocations were unchanged from a year ago at 26% of total assets. Fixed-income allocations dropped to 55% from 57%, with the difference going toward alternative investments, particularly commodities.
University of Toronto funds lag benchmarks
TORONTO — University of Toronto Asset Management missed the benchmarks of each of the three funds it oversees by at least 100 basis points in the quarter ended Sept. 30, according to information recently posted on the UTAM website. The university’s C$3 billion (US$3 billion) pension plan had an investment return of -0.49% for the quarter, 119 bps less than its benchmark return; the C$2.1 billion long-term capital appreciation pool returned -0.48%, trailing its benchmark by 120 bps; and the C$730 million expendable funds investment pool rose 0.7%, 100 bps behind its benchmark.
The 2007 target asset allocation for both the pension and long-term capital funds is 15% U.S. stocks, 15% international stocks, 15% private equity, 15% fixed income, 15% real assets, 15% absolute return and 10% Canadian stocks. The allocation for the expendable fund is 30% cash, 30% short-term bonds, 20% medium-term bonds and 20% absolute return.
Caisse measures subprime impact
MONTREAL — Caisse de Depot et Placement du Quebec could lose as much as C$500 million (US$503 million) from exposure to U.S. subprime mortgage investments, according to a statement by Henri-Paul Rousseau, president and chief executive officer of the C$237.3 billion plan. The maximum loss, just 0.3% of plan assets, would “not likely affect the financial equilibrium of the Caisse and its depositors,” Mr. Rousseau said.
The plan’s overall subprime exposure is roughly C$1 billion. Large banks have written down 30% to 50% of their subprime exposures, but the Caisse’s losses will be lower, he said. The plan holds a total of $13.2 billion in asset-backed commercial paper.
Retirement contribution gap grows in Canada
TORONTO — The gap in retirement plan contributions by wealthy and low-income families in Canada grew between 1986 and 2004, according to a new report by Statistics Canada. In 2004, combined average contributions by the wealthiest 20% of couples age 35 to 54 was 9.2 times those of their counterparts in the lower 20% of income distribution, compared with 6.7 in 1986. The average contribution gap was C$7,700 (US$7,816) in 2004 vs. C$4,200 in 1986.
“To a large extent, the growth in inequality in retirement savings seems to reflect the large increase in family earnings inequality over the last two decades,” the report said. The average income of the wealthiest 20% of the couples rose 42.7% in the period, compared with 1.6% for those with the smaller salaries.
NTGI launches pooled fund for non-U.S. investors
CHICAGO — Northern Trust Global Investments launched an emerging markets equity index fund, the firm’s first pooled vehicle for non-U.S. investors, said Stefanie Jaron, investment strategist. The fund’s benchmark is the MSCI Emerging Markets index; it will be managed using a proprietary indexing process.
“Emerging market stocks provide investors with some of the best long-term return prospects in the world,” Jason Toussaint, senior quantitative strategist, said in a news release.
The fund will require minimum initial investments of $500,000.
