Ontario finance minister Dwight Duncan is seeking feedback on a report that proposes the introduction of pooled asset management for the province’s public sector pension funds.
In a statement issued Friday, Duncan calls for pension plans and others to provide their feedback on the proposal for pension pooling, which could create a new asset manager with over $50 billion in assets under management, while generating millions in savings for participating pension plans.
Earlier this year, the government appointed Bil Morneau to examine the idea, and, in a new report, he finds that “there is a significant opportunity for pension funds to realize benefits from the economies of scale and other advantages that a pooling framework would generate.”
He estimates that a pooling frameowrk could save between $75 million and $100 million annually, once full implemented, by reducing duplication and costs; and that it could also broaden access to additional asset classes, and enhance risk management practices. “To the extent that these advantages support more diversified portfolios among participating institutions, pooled asset management may also help realize improved investment returns over the long term,” the report says.
Morneau reports that he consulted with over 100 individuals and groups, representing labour and management at Ontario’s public-sector institutions; managers as well as current and former leaders of large Canadian pension funds; investment management professionals; interested industry associations; and retirees.
“There was consensus that an opportunity exists to improve the management of public-sector pension assets, and the overwhelming majority of the participants in my meetings acknowledged the potential advantages of a new pooled asset manager featuring sufficient scale, excellent governance, independence from government and professional management,” he says in the report.
The report sets out a path for the development of a new pooled asset manager that would oversee investments on behalf of Ontario’s public sector pension and other investment funds. “I identify the critical success factors for this new institution, including appropriate scale, approach to governance and management, and the need for individual institutions to maintain control over asset allocation decisions. Adherence to these recommendations would better enable participating institutions to embrace the new pooled asset manager,” it says.
Indeed, it suggests that there is sufficient support among public-sector institutions to envisage a new pooled asset manager overseeing well over $50 billion in assets. Participating institutions would retain ownership of their assets, but invest them with the new pooled asset manager through a family of unitized pooled funds, similar to mutual funds. Also, employees and retirees would remain members of their existing plans; the relationship between pension plans and their members would not change; and, institutions would maintain their current plan designs including benefit levels and contribution rates, as well as funding policies and approaches to administration.
Now, as the next step in the process, the government is asking for feedback on the report’s recommendations from individual plans, affected stakeholders and others. “This information will help inform the government’s position as it reviews the report and develops an implementation plan that will continue to build upon Ontario’s internationally recognized pension plan model and make the management of public-sector pensions even stronger,” said Duncan.