De-risking Funds Shy Away From Emerging Markets

Canadian plan sponsors holding back on China, Africa.

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1189220_60426611It’s a question that has been nagging at me since the Global Investment Conference earlier this month at Mont Tremblant. Keynote speaker Ross Munro, to a room full of pension fund investors, was less than enthusiastic about China investment.

My question? Do Canadian pension funds actively invest in China and to what levels? The Canadian Institutional Investment Network database managed by my colleague John Son partially answered the question.

According to the CIIN data, there are 81 large Canadian pension funds reporting exposure to the emerging markets asset class. In aggregate, they have invested $11.1 billion in emerging markets. On average, that is 3.5% of the total portfolio.

China represents 17% of the MSCI emerging markets index. Using that percentage as a proxy, it looks like Canadian pension funds have about $2 billion invested in China. That doesn’t seem like a lot when you consider the Canadian pension asset pie is $1 trillion, or so.

It would seem Ross Munro’s sentiments are widely shared among Canadian pension fund investors. And that’s despite growth rates forecast for China at 9.9% by the IMF. Part of the reason can be explained by the mood of Canadian pension fund investors these days. They are busy “de-risking” and “emerging markets investing goes against the grain,” former Canada Pension Plan Investment Board senior executive John Ilkiw told a roomful of African investors earlier this week in Toronto. If you think China is getting short shrift, what about Africa? “In my view,” says Ilkiw, “Africa is 15 years away.”

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