Canadian plans worked through the market and industry disruption of COVID-19, but are seeking to incorporate the lessons learned through the pandemic period to drive success over the months and years ahead. Across the spectrum of pension investment stakeholders, perhaps the most dependable constant will be rising expectations – for performance, efficiency, data, multi-asset class reporting, risk mitigation and a multitude of other factors. 

Pension plans and their asset managers face a demand for change that has only been accelerated by market turmoil, geopolitical disruption, including the sanctions on Russia and the invasion of Ukraine, and volatility – as well as by exciting opportunities, rapid developments in technology, and fresh strategic opportunities. The need for more comprehensive data – presented in a convenient and digestible way – will increasingly be at the heart of pension, investment and operations processes. Pension and asset management professionals expect to be able to access, analyze and manipulate detailed, accurate and timely data. Likewise, as a new generation of people move into senior roles in the retirement industry, demands around data and reporting will continue to intensify.

As data science in investment management grows as a field, specialist expertise is increasing in demand and cost. Some of this expertise is only needed for key challenges or points in time. We are seeing clients working with specialist consultants as well as looking to our global enterprise for skillsets that they don’t intend to hire or grow in-house. There is a need for data to support the changing investment strategy. The demand for analytics only increases in a volatile market as industry participants aim to insulate their assets from risk or try and figure out ways to capitalize on the volatility and further grow their assets. Investors are looking into their exposure across a broad universe of assets under management (AUM). In an ideal world, AUM decomposition data can be aggregated and analyzed by simply adding a couple of portfolios together. For example, leveraging the ability to mix alternative assets and public assets that may be managed on different platforms or services so that the organizations can see the assets holistically.

In the wake of COVID-19, pension-related regulatory and public policy developments relevant to large Canadian public pension funds and other institutional investors will unfold – likely over years. In particular focus, are changes that allow for the growth of existing public pension organizations, across multiple organizations, between provincial borders and beyond. This has included rules to facilitate the merger or consolidation of plans as well as opportunities for public pension organizations to provide services, such as third-party asset management, to others beyond the plan’s existing membership. For some pension plan asset managers, the evolution to take on and manage external assets is a logical outcome from the years spent growing some of the most sophisticated and successful asset management operations in the world. Twenty-six per cent of funds in our study cited consolidation as one of the most important trends ahead. For others, the growth by consolidation and merger is an opportunity to build necessary scale to retain or gain competitive advantage and cost efficiency. Again, one size does not fit all: in various workshops, a number of leading pension plans cited their proven track records, large scale or highly efficient external manager programs as demonstrable evidence that mergers or outsourcing might in fact erode the advantages they had carefully built for plan stakeholders over many years. Based on our findings and according to our ongoing client discussions, many pensions are putting careful thought into how they split asset management responsibilities between in-house teams and external providers. According to our findings, 46 per cent of pension funds say the crisis has prompted them to review their outsourcing plan. Where this was the case, technology was the most likely trigger for review, followed by workforce skillset and infrastructure stability. Many pension funds are also reviewing their approach to investment strategy and investment operation models. 

Past crises can inform future strategies. If the investment industry can take away anything from the global financial crisis of 2008-09, it is that investor behaviour changes in the medium-to-longer term, even when the immediate short-term threat has receded. COVID-19 has emphasized the importance of keeping a diverse portfolio, as well as the vulnerabilities of illiquid assets such as infrastructure. Even amid a rising trend toward in-house management, external managers continue to see strong demand and a recognition that their long investments into industry-leading talent, powerful tools and advanced asset management offerings confer significant advantage (and associated investment return). Competitive fees, transparency and a collaborative approach to investment strategy look more important than ever in the post-COVID-19 environment. While consolidation offers pension funds certain advantages, there will also be obstacles to overcome. Pension funds intend to take their time making such decisions and introducing any new approaches, and the consensus remains that external managers have much to offer.

Long term predictions are often a challenge, and while a post pandemic landscape unfolds, our findings confirm that Canadian pension funds are working hard to ensure sustainability while keeping a close eye on costs and considering their consolidation options. As ever, despite being put to the ultimate test by COVID-19, their reputation for reliable, long-term resilience remains intact.