IMCO's Patrick De Roy on Asset Allocation in Today's Market

In February, CIBC Mellon released results of a survey of 50 of Canada’s leading pension plans, seeking insights into how they have coped with the crisis, the challenges and opportunities that now lie ahead, and how they are positioning themselves accordingly:

Canada’s pension plans enjoy a well-deserved global reputation for strong management and resilient performance, but they are not immune to shocks in the markets in which they operate. The COVID-19 pandemic – a true Black Swan1 event – has been testing pension plans and their asset managers, prompting significant volatility in financial markets and reshaping the global economy.

This is the backdrop against which we surveyed 50 of Canada’s leading pension plans, seeking insights into how they have coped with the crisis, the challenges and opportunities that now lie ahead, and how they are positioning themselves accordingly. In this report, we present the findings of this research.

The good news is that Canada’s pension plans are well-governed, maintaining diversified portfolios that deliver returns closely aligned to their long-term liabilities. This far-sighted approach has provided some protection from the disruption caused by COVID-19; most plans have the time and the space they need to work through the immediate impacts of the pandemic on short-term returns.

In this difficult environment, pension plan leaders are now thinking hard about what is needed to maintain confidence in their ability to meet their long-term obligations – above all, to fund pension payments to their members. Some repositioning will be required.

In the first chapter of our report, we present our findings with respect to how pension funds are adapting their investment strategies. Over the months ahead, we will invite you to join us as we explore other dimensions of Canada’s innovative pension and investment landscape.

In the second chapter, we present insights, opportunities and challenges with which Canadian pension funds are grappling as they seek to position their organizations for the future. In particular, we explore how Canadian pension plans are significantly advancing their in-house teams and capabilities with respect to investment and technology operations, even as they look to strategically outsource key functions to achieve scale and capture opportunity.

CIBC Mellon put out a press release to go over the findings:

Canada's sophisticated pension funds are at the forefront of a trend to shift asset management functions in-house – along with associated requirements for investment operations and systems. Even amid rising focus on in-house management, plan sponsors are also becoming increasingly strategic about selection of, allocations to and oversight on external managers, according to a new survey of 50 leading Canadian pension funds entitled, "In Search of New Value: How Canadian Pension Funds are Preparing for a Post-COVID-19 Environment," published today by CIBC Mellon.

The first instalment of the research, "Investment Strategy: What will life look like after COVID-19?" highlights how Canadian pension funds are preparing increase the portion of assets and investment activities managed in-house to 28% from 22%.  In particular, real estate (58%) and equities (48%) are the asset classes where the largest portion of pension funds are planning to increase in-house management over the next 12 to 24 months. That said, the survey also confirms that Canadian pension funds continue to see significant value in leveraging external managers to deliver returns across key asset classes.

"Many Canadian pension funds take a nuanced approach to asset management. Where appropriate, they operate with in-house teams and this appears to be increasing," said Alistair Almeida, Segment Lead Asset Owners, CIBC Mellon. "Elsewhere, they are pursuing partnerships and collaborations, as well as full-scale outsourcing arrangements. There is no one-size-fits-all arrangement."

"As the Canadian investment industry works through the market turbulence, early indications are that investors may see this as an inflection point to secure increased transparency," said Ash Tahbazian, Chief Client Officer, CIBC Mellon. "From gathering information to assist in various risk and performance scenarios, to launching separately-managed accounts with trusted asset managers, initial feedback is that investors are keen to further the gains they have made in enhancing control in recent years."

Download the Chapter 1 of the study at  clients can also contact their CIBC Mellon relationship manager to learn more or arrange a detailed discussion of the findings.  

Additional findings include:

  • Pension funds have significant plans to alter the mix of their portfolio. Notably, 86% of funds expect to reduce their exposure to infrastructure over the next 12 to 24 months.
  • The asset class most likely to see a rise in allocations is private equity, where 90% of respondents say they intend to increase allocations over the next year. Almost half of funds (42%) expect to raise their exposures to real estate.
  • Almost nine in 10 pension funds (86%) expect to invest more in fixed-income assets in the short term. However, not all funds are taking a defensive stance: 36% plan to increase their allocations to equities, almost twice as many as plan to trim allocations, while 20% anticipate a reduction in the size of their cash holdings. 


The survey of 50 leading Canadian pension managers was completed in 2020.  Half of respondents had between C$600m and $1.2B under management, and half had more than $1.2B under management.

About CIBC Mellon
CIBC Mellon is a Canadian company exclusively focused on the investment servicing needs of Canadian institutional investors and international institutional investors into Canada. Founded in 1996, CIBC Mellon is 50-50 jointly owned by The Bank of New York Mellon (BNY Mellon) and Canadian Imperial Bank of Commerce (CIBC). CIBC Mellon's investment servicing solutions for institutions and corporations are provided in close collaboration with our parent companies, and include custody, multicurrency accounting, fund administration, recordkeeping, pension services, exchange-traded fund services, securities lending services, foreign exchange processing and settlement, and treasury services. As at December 31, 2020, CIBC Mellon had more than C$2.1 trillion of assets under administration on behalf of banks, pension funds, investment funds, corporations, governments, insurance companies, foreign insurance trusts, foundations and global financial institutions whose clients invest in Canada. CIBC Mellon is part of the BNY Mellon network, which as at December 31, 2020 had US$41.1 trillion in assets under custody and / or administration. CIBC Mellon is a licensed user of the CIBC trade-mark and certain BNY Mellon trade-marks, is the corporate brand of CIBC Mellon Global Securities Services Company and CIBC Mellon Trust Company, and may be used as a generic term to refer to either or both companies.

For more information, including CIBC Mellon's latest knowledge leadership on issues relevant to institutional investors active in Canada, visit

You can download chapter 1 of this report here and chapter 2 here.

Now, this survey covers many of the smaller plans I do not cover in my comments, along with the bigger ones which I do cover.

The large, sophisticated Canadians pensions already manage most of their assets in-house across public and private markets.

They have developed a strong fund investment/ co-investment model to reduce fee drag in private equity and go direct in real estate and infrastructure.

In my opinion, the biggest risks the pandemic exposed at Canada's large plans is diversification risk of certain asset classes.

In particular, large Canadian pensions which were more diversified by sector and geography in real estate and infrastructure fared better than those that weren't.

Today, I listened to a fascinating discussion on asset allocation featuring IMCO's Patrick De Roy, Senior Managing Director, Total Portfolio & Capital Markets.

He took part in a ACPM panel discussion featuring Eric Menzer, Global Head of OCIO and Fiduciary Solutions, Manulife Investment Management and Sadiq Adatia, Chief Investment Officer, Sun Life Global Investments. It was moderated by Zaheed Jiwani, CFA, Principal, Eckler.

All the panelists offered great insights but my attention was honed in on what Patrick was saying.

He explained why bonds are still important for diversification and liquidity and why LDI isn't dead at pensions managing assets and liabilities. 

He also went into credit and infrastructure stating some infrastructure deals now offer a yield lower than you can get in credit deals, which highlights why valuations are extended and explains why most Canadian pensions are reducing their exposure to infrastructure over the next 12 to 24 months.

On real estate, he confirmed what I've been saying, namely, there might be a paradigm shift going on so the winners can remain winners and losers will remain losers if indeed there is a structural shift going on.

The most important point he conveyed, however, is how important it is to remain highly diversified in the post-COVID environment.

Consensus right now is once vaccinations are completed, we are going back to pre-pandemic life.

In my opinion, this is a very optimistic and unrealistic scenario. There will be serious dislocations in all markets in a post-COVID world and a lot of uncertainty.

The only way to deal with such uncertainty is to maintain a very well diversified portfolio and manage liquidity risk tightly.

Anyway, please take the time to watch this panel discussion below, it's excellent.

Like his bosses, Bert Clark and Jean Michel who I spoke with a couple of weeks ago when I covered IMCO's 2020 results, Patrick De Roy also discussed the importance of rebalancing in a diversified portfolio and like them he also talked about the risks of this "ALL IN" approach central banks have engaged in.

When everyone is "ALL IN", you need to pay attention to the risks out there. This is especially true for US state pensions that saw some improvement in their funded status but are at risk if yields and assets drop when the next deflationary crisis hits.

I also embedded clips featuring a discussion on CIBC Mellon's findings. Take the time to view them.