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RBC Investor Services Poll: Pensions Turn To Alternatives to Boost Returns, Cut Volatility as Funding Levels Lag

Toronto, September 20, 2012 - RBC Investor Services said today that 48 per cent of defined benefit plan sponsors plan to increase their allocation to alternative investments, which can include real estate, infrastructure assets and private investments, as they seek more long-term returns less correlated to public equity markets. RBC Investor Services' latest survey of Canadian pension plan sponsors also revealed that 70 per cent had funding levels lower than 90 per cent.

"Canadian pension plans are increasingly looking to the alternatives asset class for long-term assets that are better matched to their liabilities, and less tied to the swings of the stock markets," said Scott MacDonald, Head, Pensions, Insurance, and Sovereign Wealth Strategy for RBC Investor Services. "With many governments seeking investors to renew ailing infrastructures, there are deals to be made and pension plans are looking to gain exposure to these assets in their portfolios."

Alternatives emerges as an attractive asset class in this protracted low interest-rate environment with 48 per cent of respondents indicating they planned to increase their allocation, a figure that jumps to 88 per cent for respondents with over CAD 1 billion in assets. For respondents already holding alternative assets or those looking to invest in them, real estate is the preferred choice - 45 per cent plan to add these assets and 34 per cent plan to invest in infrastructure assets.

This trend is validated by experts at Aon Hewitt, a global leader in human resource solutions. Mark Chow, Associate Partner, Investment Consulting & Investment Manager Research, Aon Hewitt commented: "It's not a surprise that Canadian plans are investing more in alternatives, primarily illiquid assets such as real estate and infrastructure. Plan sponsors are looking for asset classes to help build better, more efficient, portfolios with the risk budgets allocated to them".

Respondents were also asked to comment on future expectations concerning the viability of maintaining their defined benefit pension plan structures. A strong majority, 61 per cent, have no plans to discontinue offering DB plans. However, 39 per cent of respondents have either already closed off their DB plans to new members and opened DC plans (27 per cent), or they plan to do so within the next two to five years (12 per cent).

The full report is available for download


The survey results represent the aggregate responses of 56 Canadian public and private pension plans with plan assets ranging from less than CAD 100 million to over CAD 1 billion. Results segregating public versus private plans and plans under and over CAD 1 billion were not statistically relevant, unless otherwise noted.

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