The median Canadian pension plan investments contracted during the second quarter of 2022 were down -8.8 per cent for the quarter and -14.5 per cent year-to-date, according to Northern Trust Canada universe data.
The Northern Trust Canada universe tracks the performance of Canadian institutional defined benefit plans that subscribe to performance measurement as part of the wealth management company’s asset service offerings.
Northern Trust asserts that the second quarter of 2022 is a tumultuous time for financial markets, with some of the highest inflation rates in decades fueled by supply chain recovery, tight labour markets, soaring food and energy prices.
As a result, they claim many major central banks, led by the Federal Reserve, are accelerating aggressive increases in policy interest rates in an effort to curb inflation.
Persistent inflation and policymakers’ attempts to bring stability to prices has been a consistent theme over the last few months. Northern Trust says: “the magnitude and pace of central bank actions to rein in inflation this quarter has soured investor sentiment and sparked fears of an imminent recession”.
As financial markets adjusted to higher interest rate movements, stock markets around the globe also witnessed sharp declines for the quarter.
Northern Trust data has found emerging markets declined for the quarter, but to a lesser degree than developed counterparts. Loosening restrictions on giant technology companies coupled with easing of COVID-19 pandemic restrictions brought comfort to investors, Northern Trust found.
Commenting on the data, Katie Pries, president and CEO of Northern Trust Canada, says: “The most recent quarter served as a reminder of how rapidly markets can shift course. We saw extreme market declines in the early days of the COVID-19 pandemic, and now we are experiencing it again in the face of changing monetary policy.”
“Although rising interest rates create market uncertainty causing a decline in pension assets, higher rates improve pension funding ratios and the overall financial health of pension plans, serving as a cushion through this volatile period.”
