Major pension funds weathering Covid-19 crisis better than 2008 crash

Canada’s major pension funds have come through the Covid-19 crisis much better than the global financial crisis, according to Moody’s Investors Service.

The rating agency said that recent results from three big Canadian pension managers — the CPP Investment Board (CPPIB), Caisse de dépôt et placement du Québec (CDPQ), and the Ontario Teachers’ Pension Plan Board (OTPP) — indicate that the impact on returns from the pandemic have been notably milder than that of the financial crisis of 2007-2008. Plus, pensions have experienced little liquidity stress.

In the immediate aftermath of the pandemic’s onset, the funds all saw investment performance weaken. However, their returns have held up “significantly better” than during the global financial crisis, when their returns fell well short of their benchmarks, Moody’s said.

“The speedy and unprecedented monetary and fiscal support in response to the rapid spread of Covid-19 certainly undid pain from the immediate market shock in March 2020 but improvements in the diversity of the funds’ asset class mix and risk management capabilities also contributed to the funds’ ability to withstand shock,” Moody’s said.

In particular, Moody’s said that, since the financial crisis, pension funds have increased their exposure to alternative asset classes, such as private equity, infrastructure and real estate, which has helped cushion the volatility of their public investments.

Additionally, pension funds’ strong liquidity positions have also helped insulate them from market turmoil.

“In contrast to the last financial crisis, these funds experienced minimal liquidity stress during the market turmoil in the first half of 2020. We believe improvements in risk management governance processes since then have been successful in protecting funds against market volatility,” Moody’s said.

“Given the rally in financial markets in the second half of 2020, we believe these pension managers have entered 2021 on a strong footing,” the report noted.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.