Pensions seek clear strategies, lower costs through in-house management

Canadian pension funds are shifting asset management in-house, new research from CIBC Mellon says, and managers want lower fees and greater transparency on funds managed externally.

The survey of 50 pension managers last year found an average of 22% of assets managed in-house; that figure is expected to rise to 28% this year.

Almost two-thirds of pensions said bringing asset management in-house allows for a clearer alignment of strategies with long-term objectives. More than half cited advantages such as having a better overview of allocation, stronger long-term returns and enhanced governance.

“With pension plan sponsors and managers coming under increased scrutiny from regulators, plan members, employers, counter-parties and other stakeholder groups, the fact that an in-house team can potentially enhance governance may become even more crucial,” the report said.

Only 46% of pensions cited lower overall costs among the top benefits of in-house management. However, of the funds that have taken management in-house, two-thirds said they had reduced costs as a result.

“In an era of low interest rates and low returns, this will be crucial — and some studies suggest that Canadian pensions are reducing their costs by as much as a third by favouring an in-house approach,” the report said.

The survey found costs to be a source of dissatisfaction with external managers. More than four in 10 pensions were dissatisfied with the fees they pay, compared to only 36% who were either satisfied or very satisfied with those costs.

Most said they will look to lower external management fees (86%), request more transparency regarding outsourced assets (80%), be more vocal about investment strategies (80%) and request improved governance (74%).

The top motivations for continuing to use external managers were better projected returns (58%), broader expertise (56%), complexity of funds (52%) and the transfer of operational risk (46%).

As part of the same industry survey, CIBC Mellon reported last month that most pension managers were planning to increase their allocations to private equity this year.

Mark Burgess

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Mark was the managing editor of Advisor.ca from 2017 to 2024.