Pension funds suffer largest investment losses since 2008 financial crisis

Canada’s defined benefit pension plans have suffered the biggest loss since the 2008 financial crisis, according to a study by the Royal Bank of Canada. RY-T.

Plan assets suffered heavy losses in the first two quarters of 2022 before beginning to recover in the second half of 2022. He had a 3.8% return on pension assets in the final quarter, as measured by RBC Investor & Treasury Services’ All Plan Universe, a performance benchmark.

Pension plan investors have been hit by an unusually volatile market with high inflation and a rapid recession. rising interest ratesas both stocks and bonds Reduce return losses instead of offsetting each other, as has often been the case in past market downturns. And while the plan is for him to earn a positive return to close out the year, he faces many of the same pressures in 2023.

“In the coming months, the plan’s sponsors will continue to monitor the economic impact of central bank actions, ongoing geopolitical tensions, and ongoing efforts to contain the COVID virus outbreak in certain emerging markets. We need to pay attention to risk factors.

The Canadian pension plan bond portfolio recorded a median loss of 16.8% in 2022. This is the largest annual decline in over 30 years and also lags behind the benchmark FTSE Canadian Bond Index. The losses were driven by drastic steps taken by central banks to curb inflation by raising interest rates, with the most inflation-sensitive long-term bonds accounting for some of the biggest declines.

But for pension plans, a sharp rise in interest rates was a silver lining, reducing future liabilities. as a result, More pension plans ending in the black in 2022, which means that the assets were greater than the liabilities. Higher fixed-income yields may also give pension plan managers more options to reduce risk-taking in their portfolios over the next year.

Equities also fell rather than act as a counterweight to the decline in bond prices. Foreign stocks ended the year down 11.3% after he rose 9.7% in the fourth quarter, according to RBC I&TS. And Canadian stocks rose 6.3% in the final quarter of the year, giving him a relatively modest annual loss of 3.6%. Value stocks generally outperformed riskier growth stocks in the quarter.

2008 was the last time plan assets fell so sharply, with a median loss of 15.9% on Canadian defined benefit plan assets.

A defined benefit pension plan pays a fixed amount of benefits for the life of the beneficiary, based on the participant’s contributions and length of service.