Given the rising Pension Benefit Guaranty Corporation (PBGC) premiums and persistently low interest rates, many US pension plans have been adapting some of the practices of what Cerulli Associates call The Canadian Model.

The Model is centered around three attributes, according to Cerulli: cost mitigation, a well-diversified investment portfolio across several asset classes and geographies, and a large appetite for illiquid investments.

While the Canadian pension market is considerably smaller than the US pension market—$1.2 trillion in assets compared to $6 trillion—the top 10 Canadian pension plans account for 45% of the market, compared to the top 10 US pension plans accounting for just 22%. As a result, Cerulli says, Canadian pension plans are very sophisticated.

While US pension plans typically turn to outside investment managers, Canadian pension plans handle a great deal of their investing in-house, thus lowering costs even though they pay their investment managers more than US pension plans do, according to Cerulli.

Canadian pension plans are also very well diversified, Cerulli found. For instance, the Ontario Teachers’ Pension Plan has 46% of its assets invested in equities, but only 2% in Canadian equities, as well as 23% in bonds. The fund is also invested in a variety of alternative investments and borrows in the money markets to help fund other investments.

Full Content: Plan Adviser