Canadian institutional asset managers steered their portfolios more to private markets and away from traditional equity and fixed-income securities in 2022, as a response to persistent inflation and continued market volatility.
That was one of the findings of the Coalition Greenwich Voice of Client 2022 Canadian Institutional Investors Study, released on Thursday.
The study also revealed that institutional investors in Canada pegged inflation risk, market volatility and asset allocation as their predominant challenges in 2022.
More than half (53%) of Canadian institutions were concerned about their asset allocation decisions (up from 49% in 2020), while 46% were worried about market volatility (but that figure was down from 57% in 2020).
Some 38% of institutions cited inflation risk as a key concern, far above the 5% figure from 2020.
Concurrently, worries about liability management and funding ratios eased as the increase in interest rates helped close funding gaps, the study noted. In addition, concerns over government regulation decreased significantly, due in part to the Canadian government's efforts to tamp down inflation.
"One positive impact of the multiple interest rate hikes during 2022 was the universal increase in pension plan funding levels, which were already high relative to the U.S. corporate plan funding levels," Coalition Greenwich said in a blog issued in conjunction with the study. "Public plan funding levels were also remarkably healthy."
With respect to selecting investment managers, some 83% of the institutions cited the importance of clarity and consistency of the investment philosophy and process, making it the biggest factor.
That was followed by reasonable fees (72% of institutions), capabilities of investment management professionals (68%), and ability to deliver superior performance (66%) as the other top criteria in the selection process.
"Funding levels are at an extremely high and healthy level, but investors are looking for more from their managers in terms of knowledge, thought leadership and partnership," the blog concluded.
Coalition Greenwich, a provider of strategic benchmarking, analytics and insights to the financial services industry, is a part of CRISIL Ltd., an S&P Global company.
