Over the last several years, Canadian pension managers have improved their ability to repay creditors despite increasing their exposure to less-liquid asset classes such as infrastructure, real estate and private equity, Moody’s Investors Service says in a report published Wednesday.
“These firms are holding larger shares of highly liquid securities, increasing recurring investment income, and reducing reliance on short-term debt programs,” Moody’s says in the report.
The combination of these factors is improving pension manager liquidity. As a result, Canadian pension managers “have improved their ability to repay creditors” despite increasing their exposure to less-liquid asset classes, Moody’s says.
Overall, Moody’s estimates of pension manager liquidity coverage for creditor obligations substantially in two years to 335% from 266% in 2015.
“Relative to most fixed income, equity exposures associated with Level 1 assets are credit negative because equity has higher historic price volatility. However, these exposures have replaced less-liquid Level 2 investments, a credit positive from a creditor perspective, because they can be easily sold should a pension manager need cash. This is especially important during times of market turbulence,” says Jason Mercer, vice president at Moody’s, in a statement.