Fitch Ratings says Canadian pensions face mounting actual property losses

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Canada’s giant pensions are going through rising losses from actual property investments, in accordance with a sector report by Fitch Ratings Inc., which concluded that fund titans are nonetheless well-positioned to soak up near-term market swings.

“Fitch believes Canadian pension fund funding portfolios will stay pressured by a difficult market backdrop, because the elevated price of debt and anticipated slower development weigh on non-public asset valuations,” stated Dafina Dunmore, senior director of the rankings company.

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However, she stated the funds have “exceptionally robust liquidity,” which can present enough cushion to soak up funding volatility and suppleness to work by troubled investments.

“They aren’t compelled sellers of belongings,” Dunmore stated.

The Canadian pension funds tracked by Fitch managed roughly $2.1 trillion of internet belongings as of Dec. 31, 2023.

The Fitch report checked out seven giant Canadian pension funds: Alberta Investment Management Corp., British Columbia Investment Management Corp., Caisse de dépôt et placement du Québec, Canada Pension Plan Investment Board, Ontario Municipal Employees’ Retirement System, Ontario Teachers’ Pension Plan, and the Public Sector Pension Investment Board.

Real property property values are being hit by a mix of things together with larger borrowing prices, shortage of financing choices and a basic repricing of belongings. The impact on workplace properties is amplified by the shift to distant work and Fitch expects persevering with losses in Canadian pension fund workplace portfolios into 2025 as refinancing necessities mount.

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The rankings company stated it has not seen widespread non-public credit score losses, although defaults are prone to tick up for the rest of this yr and into 2025 given larger debt service burdens for underlying debtors and slowing development. 

“Pension funds that make investments instantly in non-public credit score will probably be put to the check with respect to their exercise capabilities,” Dunmore stated.

Canadian pension funds are responding to market situations, together with larger for longer rates of interest, by more and more reallocating inflows and sale proceeds to authorities bonds, in accordance with Fitch. Meanwhile, the fund giants had been largely internet sellers of personal fairness belongings in 2023 after binging on the asset class following a number of years of robust returns. 

“While additional reductions to personal fairness are anticipated, Fitch believes the funds proceed to be long-term traders in non-public belongings,” the rankings company stated.

• Email: bshecter@nationalpost.com

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