News Features

Anyone who's even vaguely following the financial meltdown in the U.S. would be familiar with the names of some of the institutions that have taken a wild ride in the volatile markets.

When the likes of Lehman Brothers Holdings Inc., Merrill Lynch & Co. Inc., American International Group Inc. (AIG, for short) turn up in the investment list of the British Columbia Investment Management Corporation, it could lead to
questions about the health of pensions managed by the provincial Crown corporation.

The bcIMC, which manages mostly college, public-service, municipal, and teachers' pension plans, recently posted on-line its annual investment inventory as of March 31, 2008.

It also had placements with American mortgage-finance companies Fannie Mae and Freddie Mac, which have been at the centre of the subprime-mortgage collapse that precipitated the global financial contagion.

However, the corporation, according to manager of corporate initiatives Gwen-Ann Chittenden, does not disclose its current holdings and returns to the investments, as per its policy.

“We do that to protect the commercial interests of our clients,” Chittenden told the Georgia Straight. “But we do disclose our holdings, but on a six-month lag. So it will always be around about October of each year that we will disclose our investment holdings.”

Two recent reports indicate that Canadian pension plans have taken a hit from the global financial crisis.

On October 17, the RBC Dexia Investor Services announced that Canadian pension plans suffered the largest quarterly decline in a decade at the end of September this year. Its director of advisory services, Don McDougall, stated that year-to-date, pension plans have gone down 10.1 percent.

The Mercer Pension Health Index, released on October 9, also indicated a similar 10-percent annual decline.

In a memorandum to pension clients dated October 1, 2008, bcIMC chief executive officer and chief investment officer Doug Pearce stated that “these are challenging times and bcIMC expects this volatility to continue into 2009.”

“Despite our conservative investment approach, bcIMC and the plans' investments are not immune from the broad market impact,” Pearce wrote. “Although short-term volatility will impact performance, bcIMC invests for the long-term.”

Pearce assured clients that their pension funds are “secure”. He also stated that their pension funds are “safe and well-positioned for the long term”.

The bcIMC has $85 billion worth of assets under its management, which are spread in a diverse portfolio.

According to Bruce Walton, former Vancity Savings Credit Union chair and NDP Surrey-Whalley MLA, the Crown corporation doesn't hold any of the financial products that have turned toxic. These include asset-backed commercial paper—notes with a value based on pooled mortgages and other assets.

Ralston noted that bcIMC's keeping away from these instruments is a sign that the corporation is well managed.

“Everyone in the equity market has taken a hit,” Ralston told the Straight. “There's no reason for those who receive pensions or who expect to receive pensions in the future to have any concern in the longer run. It's a tough market. But they [bcIMC] invest with a view anticipating those kinds of fluctuations.”

Amir Rubin, an assistant business professor at SFU, noted that the value of Lehman Brothers stocks had gone down to zero, while that of AIG had depreciated by 90 percent.

“It wouldn't be surprising if the value of the pensions went down, depending on their mix,” Rubin told the Straight. “Going down between 10 to 20 percent in the last few months isn't going to be surprising.”

Rubin said that old pensioners holding defined benefit plans have nothing to worry about because their incomes aren't affected by market fluctuations.

It's a different story for those with direct contribution plans, which Rubin said are based on how the stock market is doing.

“It's quite clear that those who are suffering the most now are those people who have defined contributions, and are now doing their pension years,” Rubin said.