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Pension Funds

Canadian plans balance increases in liquid, less liquid investments

Five of Canada's largest public pension plans' internal management units have increased their gross investment exposure to less-liquid assets — infrastructure, real estate and private equity — but have also boosted holdings of highly liquid securities, according to a Moody's Investors Services report released Wednesday.

The Moody's report reviewed internal managers at the C$368.3 billion ($278.6 billion) Canada Pension Plan Investment Board, C$193.9 billion Ontario Teachers' Pension Plan and C$95 billion Ontario Municipal Employees' Retirement System, all of Toronto; and the C$308.3 billion Caisse de Depot et Placement du Quebec and C$153 billion Public Service Pension Investment Board, both of Montreal.

The five have brought their cumulative investments in less liquid assets to an average 40% as of the end of 2017, from 37% two years earlier, according to Moody's. Over the same period, the units have had the same percentage increase in their liquid assets, to a cumulative 40% from 37%.

"Much of this (liquid) asset growth has been in marketable equity exposures, which increased to a quarter of gross investments in 2017 from just over a fifth in 2015," according to the report. "Over that same time, allocation to fixed-income investment fell to 9% from 12%"

All five manager units have increased the average term of their creditor obligations by issuing medium term notes and other forms of term debt, the report said.

"As a result, our estimate of (the manager units') liquidity coverage for creditors has improved to 344% at the end of 2017 from 271% in 2015," according to the report. "Along with greater investment in more-liquid level 1 securities and less short-term leverage, pension managers have also experienced growth in recurring investment income such as interest, dividends, and real estate rent."

The full report is on Moody's website.