CANADA - Pension funds are increasingly carrying out asset liability modelling (ALM) studies to better understand their risks and find their optimal portfolio following the removal of the foreign property rule, pension consultants have said.
Pension funds have sought to better understand the risks they take when they mismatch assets and liabilities, said Stephen Bonnar, principal at Towers Perrin.
“They want to take risks consciously as opposed to implicitly,” said Bonnar, who added he was currently working through ALM studies for three Canadian pension plans.
Sadiq Adatia (pictured), head of investment consulting at Mercer Investment Consulting for Central Canada said funds were now able to carry out ALM studies without any constraints after the government removed the FPR.
“Clients will now be able to utilise a broader investment opportunity set and will be able to build portfolios that have a better risk/return profile,” he said. “Over the next few years, we expect to see a higher equity allocations invested outside Canada.”
Adatia added that risk budgeting exercises, which should be part if any asset liability study, remained vital in ensuring funds were taking an appropriate amount of risk.
“People went away from that for a while, but they are coming back to the idea they are managing these assets for the purpose of the liabilities,” he said.
Plan sponsors needed to ensure they were cognisant of the plan's liabilities as they manage the assets which support those liabilities, he added.
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