CIBC Mellon Canadian Asset Owner Study 2023 - 2024 – Rising Pressure

December 2024

Pension plans in Canada face numerous challenges. While some have been proactive, others are now adjusting. Managing longevity risk and ensuring pension assets support retirees over a longer time horizon remains a constant challenge. Macroeconomic and market uncertainties, changing interest rates, and the need to reallocate assets have added short-term pressures. High interest rates have eroded long-dated bond portfolios, forcing trustees to reassess their strategic asset allocations while securing steady income streams for their members.

The expectation that pension funds incorporate ESG considerations into their investment decisions while maximizing returns is a significant challenge. Canadian asset owners are diverging from their U.S. counterparts by including nonfinancial factors, even as some U.S. asset owners and managers pull back. For some, "Green-hushing" is a way to deliver results without raising expectations or taking on liabilities: incorporating ESG into internal risk and return calculations while staying silent externally. For others, ESG investments come with public and member relations opportunities and risks, alongside new valuation factors from an investment perspective.

CIBC Mellon's ongoing research explores how asset owners are adapting to these challenges, specifically looking at the recalibration of investment strategies, the embrace of technology, the optimization of operating models, the shifting talent landscape, and consolidation strategies to better prepare Canada's pension industry and its stakeholders for the future.

Increased scrutiny from stakeholders, including members, sponsors, the media, and other institutions, is a guarantee for pension plans. The global pension industry recognizes Canada as a center of innovation, with some jurisdictions considering incorporating lessons learned and best practices from the "Canadian model" of shared-risk, independently-governed pension organizations. In Canada, the independence of pension plans is under focus, from campaigns promoting domestic investment to media scrutiny of pension compensation arrangements designed to retain high-performance investment teams.

Innovation continues, with some pension plans seeking to gain scale through acquiring new members and other plans, even as non-pension players from the insurance and asset management industry compete to offer pension-like structures. The challenge is to stay focused on long-term obligations amid current market needs in a world driven by rapidly shifting risks across geopolitics, technology, macroeconomics, demographics, and more. Canadian plans have a record of outperformance envied globally: how and whether course corrections are needed to protect, enhance, and navigate these challenges will remain at the forefront for pension managers, trustees, stakeholders, and their asset servicing providers.

We thank our clients for their ongoing input, especially those who helped shape this research during the preliminary release period with comments, suggestions, and examples from direct experience. We welcome feedback, including opportunities for shared discussion in individual meetings. Please reach out to your client manager or contact us via cibcmellon@cibcmellon.com.

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