Not only have Canada’s banks weathered the financial crisis better than their foreign rivals, so have Canadian institutional investors, which had more conservative portfolio allocations when the crisis struck, according to new research from Greenwich Associates.

Due to these more conservative initial positions, Canadian institutions “are emerging from their post-crisis reviews of internal investment policies with their pre-crisis strategies and asset allocations largely intact”, it reports.

Greenwich says that half the institutions participating in its latest survey have reviewed or made changes to their investment policies in response to the market events of the past 12 months. “These institutions seem to have concluded that their policies are generally sound and that the painful reductions in asset values last year were caused not by a failure of their internal policies, but rather by a systemic breakdown in global markets that proved impossible to avoid,” it reports.

“In keeping with that assessment, Canadian institutions appear to be sticking with general allocation frameworks put in place over the past five years and keeping in place some of the strategies that had guided allocation shifts prior to the crisis, including the expansion of foreign holdings and a relatively cautious stance on alternative asset classes,” says Greenwich Associates consultant Dev Clifford.

The firm notes that in the years leading up to the global financial crisis, Canadian institutions maintained relatively large allocations to fixed income in comparison to institutions in the United States. It found that approximately 15% of Canadian institutions participating in its survey have left their fixed income allocations entirely unchanged from 2008 to 2009, while almost 45% have made moderate increases and an equal proportion made moderate decreases. No Canadian respondents made “significant” additions or cuts to their fixed-income allocations over that period, it says.

Canadian institutions have also been more conservative about embracing alternative asset classes, and the survey found that some are looking to reduce their exposures even further. Almost 30% of participating Canadian institutions say they have already reduced their allocations to hedge funds, including almost 15% saying they have scaled back these allocations “significantly”. None of the institutions increased allocations to either hedge funds or private equity and 14% made moderate cuts to their private equity allocations, Greenwich reports.

Additionally, it says that more than 70% of participating institutions say they have left allocations to international equities unchanged from 2008-2009 with only about 15% each saying they made moderate increases or decreases. Almost 45% of institutions say they left allocations to domestic equities unchanged over the past 12 months, with 30% making moderate increases and an equal share making moderate reductions, it adds.

Canadian institutions have not made dramatic changes to their asset allocations over the past 12 months, but they have taken several important actions in response to the crisis, Greenwich reports: about 25% of them have already made investments in opportunistic funds; almost one third have cut back on their securities lending programs; and, about 75% plan to hire a new investment manager in the coming year and almost 55% expect to terminate a manager.

“Now that Canadian institutions are completing their detailed reviews of the events of the past 12 months, they appear to be gearing up for a significant shake-up of their investment manager rosters over the course of the next year,” says Clifford.

IE