CANADA - Smaller Canadian defined benefit pension funds are keen to follow their larger counterparts into infrastructure but doubt they have the scale and expertise to invest in a complex asset class, according to a report by Royal Bank of Canada Investor Services.
A survey of 56 public and private schemes, with assets under management ranging from less than CAD100m (€79m) to more than CAD1bn (14%), found almost half intended to increase their allocation to alternatives.
Of the sample, 45% intended to increase their allocation to real estate, up from 38% in 2011, and 34% to infrastructure, up from 27%.
Yet, although large Canadian pension scheme managers such as CPPIB, OMERS and OTPP feature among the world's most active infrastructure investors, schemes considering diversification into the asset class identified significant barriers to investment, including lack of scale, identified by 18%, and lack of expertise, identified by 17%.
Anecdotally, pension fund managers also identified liquidity, inability to find global opportunities and governance as potential obstacles to investment.
According to the report, Canadian DB schemes see illiquid alternatives as offering long-term stable returns with less volatility than equities.
Increased weightings to real estate and infrastructure are likely to come at the expense of equities.
Of those polled, 43% planned to reduce their allocations to developed-market equities.
"While the headline players have the capital and internal expertise to efficiently manage and monitor a wide range of alternative investments, smaller players do have access -from fund vehicles, such as open-ended funds to public-private partnerships and managed consortiums," the report said.
"As a low volatility option, alternatives are the asset class to watch."
