What You Need To Know About Canadian Pension Fund Asset Allocation and Diversification

When we think about retirement, we consider our own personal savings, real estate, insurance, and investments. Another key aspect of retirement planning is considering a pension. Many Canadians are familiar with the Canadian Pension Plan. This is a basic benefits package provided to Canadians over the age of 65. The Canadian Pension Plan (CPP) is managed by the Canadian Pension Plan Investment Board (CPPIB), one of the top ten public sector pension funds. As Canadians pay into their pension over time (through wage deductions), this money is invested to meet the demand once citizens begin applying for their pensions in retirement. It’s important to invest this money when consider inflation.

What is a pension fund?

A pension fund is a pool of capital created via the deduction of employee wages and, in some cases, employers matching these deductions. This capital is then invested in the effort to grow the fund.

Employees and Canadian citizens then withdraw from these funds in retirement. We commonly see Canadian pension funds in the public sector, although there are private sector funds as well. Many government employees have pension funds they pay into in addition to CPP.

The Top Ten Public Sector Canadian Pension Plans Are:

● The Canada Pension Plan Investment Board (CPPIB)

● The Caisse de dépôt et placement du Québec (Caisse)

● The Ontario Teachers’ Pension Plan Board (OTPP)

● The British Columbia Investment Management Corporation (bcIMC BCi)

● The Public Sector Pension Investment Board (PSP Investments)

● The Ontario Municipal Employees Retirement System (OMERS)

● The Healthcare of Ontario Pension Plan (HOOPP)

● The Alberta Investment Management Corp. (AIMCo)

● The Ontario Pension Board (OPB)

● The OPSEU Pension Trust (OPTrust)

Source: The evolution of the Canadian Pension Model PDF

Typical Asset Allocation of a Pension Fund

As with any investment, diversification is critical for security and growth — Canadian pension funds are no exception. A typical pension fund portfolio is based on a mix of equities, fixed income, real estate, and alternative investments such as MICs.

What sets the top ten apart from other funds is that 35% of their assets are invested in alternative investments such as infrastructure, private equity, or real estate. In comparison, retail investors generally do not invest in alternative asset classes and other pension funds are closer to 10% invested. Alternative assets allow for greater diversification within a fund and are a growing investment avenue that cannot be ignored.

Source:The Evolution of the Canadian PensionModel PDF

Curious about how MICs can provide an opportunity to grow your investments while protecting through diversification? Jordan on our team would love to answer your questions. Reach out to him today to learn more.