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PIAC average asset allocation updated.

The average Canadian Pension fund asset allocation for 2012 didn’t change much from the previous year. So much for the great rotation from Bonds to Stocks. _____________________________________________________________________________________

In Sum

PIAC is the Pension Investment Association of Canada. Membership includes 130 pension funds that manage over $1 trillion of retirement investment assets on behalf of millions of Canadians.

Each year, member Pension Funds provide year-end asset allocation data. The amalgamated result provides a composite asset allocation picture … the average asset allocation for Canadian pension plans. See the PIAC allocation as at year-end 2012 here (updated Friday July 5th). Here are the broad PIAC asset class numbers. (Click picture for larger image).

PIAC AA asset class 1990-2012

See previous year-end allocation updates here and here.

A recent Pension & Investments online article suggests that the top 10 Pension Plans in Canada represent just over 1/3rd of Canadian retirement assets. It would be difficult to find a better representation of an average asset allocation for retirement assets.

Individual investors who don’t have a strategy for their own investment portfolio might use the PIAC composite as a starting point (simply mimic the PIAC allocations). Individual investors (and readers of this Blog) who do use PIAC as a guide for their own portfolio will notice that the update for year-end 2012 … well, didn’t change much. Some. But not a lot.

So much for the much-advertised great rotation out of bonds and into stocks.


Institutional asset allocations change in steps not leaps. In contrast to what investors may have read, an abrupt rotation from bonds to stocks didn’t really happen. (While dollar amounts are huge, the percentages? Not so much). Using the PIAC average allocation as a guide, Individual investors should note the longer-term perspective and measured steps when managing their own portfolio – their personal pension plan.

Here are the detailed PIAC asset allocations. (Click picture for larger image).

PIAC AA 1990-2012

PIAC average asset allocations remain diversified across asset class, region and currency spreading risk while casting a wide net across different sources of potential return.

Canada bonds are constant. Despite headlines that inspire bond panic at the prospect of increased interest rates, the PIAC average bond allocation remains at about 1/3rd of the composite portfolio. Bonds provide a match to or offset against Pension liabilities. (Bond interest payments look like the mirror image of retirement income payments and thus are a good match). Even at low and the prospect of rising interest rates, bonds still provide some certainty of return and give a portfolio stability.

No doubt, there have been changes to the composition of the bond allocation as Pension plans try to squeeze more yield out of this 1/3rd of their portfolio. Many plans have long since moved into the Provincial, Corporate and High-yield bond space to pick up yield premiums over Canada bonds. And surely, durations have been shortened. Perhaps, a bond barbell strategy is in place.

Foreign bonds still make up only 1.5% of the PIAC allocation. Despite the prospect of capital growth and enhanced yield opportunities, foreign bonds may have currency risk in addition to the usual interest rate and credit risk. Foreign bonds, even if hedged to the Loonie, are more likely to remain a tactical bet.

DC (defined contribution) Plan information is new this year.

Note, the foreign bond holdings in DC plans roughly equal the PIAC DB average. A detailed breakdown however shows foreign bond holdings in DC plans at 16%. Stateside, U.S. DC plans also have substantially more foreign bonds. Individual Investors appear to have made bets on foreign bonds where Institutional Investors have not.

The Canadian equity allocation has dropped by ½ in a decade. Recall the foreign content restrictions were relaxed as follows: (Until 1994 only 10% foreign content was allowed. In 1995 it moved to 20%. 30% in 2001. And 100% in 2005). The reduction in Canadian content also reflects the recognition that Canadian equities make up only ~4% of world markets. So Canadian equity has been one source of funding for much of the move into foreign equities and Alternative assets in attempt to diversify, enhance income and return and reduce volatility.

Emerging market equity allocations moved from 2.7% to 4%. While EM’s now represent about ~13% of world markets, the PIAC allocation to EM has changed little. (Well, I guess a move from 2.7% to 4% is over 25% growth).

Alternative assets (anything other than stocks, bonds or cash). Alternative assets continue to grow (with money borrowed at low rates? See the negative cash allocation). The move to the Alternatives space, too, has been measured.

The PIAC Alternatives allocation to Canadian Real Estate was in previous years about ½ and is now closer to 1/3rd of Alternatives. See here for comments regarding real estate valuations. Individual investors can add US REIT exposure with a choice of ETFs.

Infrastructure, Private Equity and Hedge fund allocations are simply business as usual. See comments here and here regarding infrastructure.

Other asset is an odd one. For 2012, it’s ~4% of the composite portfolio.

PIAC does not disclose average returns. However, the Mercer Pooled fund survey for 2012 shows the average balanced fund returned ~9% in 2012.

Looking for the U.S. perspective?

Aggregate AA Sept 30, 2012 020413-retirement-plans-asset-mixes

The Pension & Investments online aggregate asset allocation for the Top DB pensions (at Sept 30, 2012) show similar characteristics to the PIAC plans with fixed income just under 1/3rd. Note, too, the significant cash balances in the DC plans.

PIAC can serve as an asset allocation guide for Individual investors. An individual investor’s portfolio does not need to look exactly like the PAIC average portfolio. But PIAC can be used for guidance. And that’s likely to be the performance experience.


Next time? More Risk Management.
Doug Cronk CFA is Manager, Investments for a Canadian Pension Plan
12 Comments Post a comment
  1. andrewLDIY #

    Hi Doug ,
    I have been an Index/passive /couchpotato investor since 2007 & enjoy & appreciate your articles.
    Can you clarify for me what the difference is between Global Equities vs. EAFE vs. Emerging markets Equities is ?? ( I always thought that anything outside my home country (Canada) & the USA is considered “Global ” . The PIAC allocations seem to suggest that EAFE ,Emerging Mkts. & Global as completely unrelated classes. I understand what EAFE & Emerging are ,but not sure what “Global” exactly is……..)
    Any input to clarify this would be hugely appreciated.


    September 19, 2013
    • Hi, Andrew.

      ‘International’ used to b the phraseology for non-Canadian, non-US developed markets with Emerging markets simply non-developed markets.
      ‘Global’ is all-inclusive. No borders. It includes Canada, US, EAFE, EM. MSCI World might be the appropriate benchmark for developed markets. Or more and more we see the MSCI ACWI All-Country-World-Index benchmark which includes Emerging markets. The lines even more are blurred these days as some Emerging markets have emerged [Korea, for example] and we add ‘Frontier’ markets; the new emerging markets.


      A ‘Global’ mandate, some investment managers argue, gives them the opportunity to pick the best of the ‘sector’ that includes all the world’s ‘like-companies’. Best Bank of all the world’s banks, say. Or the best Tech or Gold or Real Estate company of all the world’s Tech or Gold or Real Estate companies. They argue a Bank or Tech or Gold company looks the same in Canada as it does in Romania, say. This makes sense, in theory, as globalization makes a sector in the U.S., Canada, Europe look more and more similar. Volkswagen Golf built in Brazil. Ford’s built by Mazda in Japan, for example. HSBC Bank is everywhere. Should it be compared with Deutsche Bank? Royal Bank? Wells Fargo? You get the idea. And accounting standards like IFRS make companies more and more comparable across borders.

      I’m not convinced. I have not seen the Institutional Global mandates outperform the geographic mandates (Canada, US, EAFE, EM). Indeed, take a look at the US versus EAFE or EM (or Canada) so far this year … the performance has been very different. The opportunity to invest in EM was ripe in June, the US didn’t sell of nearly as much. I still see the ‘global’ markets moving differently enough for a top-down, asset allocation to make geographic timing decisions. See my last blog ‘The Reluctant Market Timer’.

      By the way, ‘Global’ companies make a risk managers life miserable. HSBC Bank is a good example. Is it a Hong Kong Company? A British company? How am I to determine what my ‘true’ exposure is? … but that’s a topic for another day.


      September 19, 2013
      • andrewLDIY #

        Thanks for your reply, Doug.
        So, if I already currently have ETF’s covering specifically EAFE, EM, Canada , USA and various tangibles from BEFORE I came across these PIAC allocations, could you recommend some ETF’s that will specifically cover the ” Global Equities” class , so that I can better mimic the PIAC allocations ?
        Or have I covered enough of the globe already with the ETF’s I already have in EAFE, EM, CANADA & USA (mentioned above) ?


        September 19, 2013
      • Hi, Andrew.
        No I wouldn’t recommend any specific ETF. I’m not licensed to do so.
        However, I would suggest you use the IndexUniverse tool on my blog (under Tools). Select ‘blended development’, ‘global’ geography and ‘global total market’ segment. The tool will give you a selection of Global ETFs. iShares, SPDRs and Vanguard. Note the low MER of Vanguard VT. If you follow my blog, you will note that I lean towards Vanguard ETF products.
        Having said that, ‘Global’ (as per MSCI ) is simply 1/2 US, 13% EM, etc. So the PIAC ‘Global’ allocation of 14%, you can simply allocate and additional 7% to US, etc.
        Again, personally, I prefer the regional ETFs over the Global as we are now seeing there can be a difference in performance at different times and that means buy low and rebalancing opportunity.


        September 20, 2013
      • andrewLDIY #

        Thanks . Very helpful .


        September 20, 2013
      • My pleasure! Thanks for visiting my blog.


        September 21, 2013
  2. I hold Canadian REITs currently. It’s a relatively small allocation due to the current price level. I just bought in this April so I want to get a better feel for the market and see when valuation improves. I would like to add a US REIT allocation too but it will take some more work to find a good ETF to use. I can’t wait for higher yields to make things more attractive!


    July 7, 2013
    • I too am concerned about current REIT price levels (thus my comments referring to real estate valuation in previous blog entries).

      If / when I add to existing Canadian real estate holdings (XRE), I am considering VRE & ZRE.

      Stateside, if/when I add to existing holdings (VNQ), I will likely stick with VNQ.
      From my blog ‘Tools’ page at
      select the ‘IndexUniverse’ tools and then select ‘asset class = equity’ ‘sector’ and ‘focus = real estate’ also de-select ‘inverse’ ‘leveraged’ and ‘etn’s’ and you will have a list of 26 Real Estate ETF’s from which to choose. Vanguard VNQ is 0.10% and is I think the most inclusive of all real estate ETFs.

      Good luck.


      July 8, 2013
      • Thanks for the tip – I’ll look at VNQ. I currently hold ZRE to get the best diversification in our limited market.


        July 8, 2013

Trackbacks & Pingbacks

  1. PIAC 2015 Composite Average Asset Allocation – An Update | Institutional Investing for Individual Investors
  2. PIAC Asset Allocation – 2013 Update | Institutional Investing for Individual Investors
  3. Global pension asset allocation in 2013 | Institutional Investing for Individual Investors

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