Public pension plans and asset managers have been rocked by poor returns, but their credit ratings remain strong, DBRS Ltd. said Monday.

Pension plans rated by DBRS include the Caisse de dépôt et placement du Québec, Canada Pension Plan Investment Board, Ontario Teachers’ Pension Plan Board, OMERS Administration Corp. and Public Sector Pension Investment Board —

According to new research from the credit rating agency, while the public pension funds and asset managers it rates “have been adversely affected by the challenging economic environment that prevailed in 2008 and into 2009”, they remain solid credits. DBRS points to several factors that support their high credit ratings, including low leverage, superior liquidity positions and strong sponsorship, along with large asset bases.

DBRS notes that the funds and mangers it rates were certainly hurt by the financial market turmoil, reporting returns of -15% to -25% in the last fiscal year. “The poor investment performance had the effect of significantly shrinking their asset base and eroding their funding position, suggesting that the risk level in certain portfolios may have been higher than originally measured. This situation also generated considerable attention among investors trying to assess the potential impact of the losses on the credit profiles of these organizations,” it says.

Moreover, the rating agency allows that the downturn has reduced the financial flexibility of these operations, and that it will likely take several years to make up for the poor performance. However, it maintains that they retain “considerable resilience” and that these factors keep them highly rated. “DBRS believes that these credits have the necessary flexibility to weather the downturn, provided leverage is kept under control and no attempt is made to recover the recent losses through increased risktaking,” says Eric Beauchemin, managing director at DBRS.

IE