Managing Pension Assets Through COVID-19 Uncertainty

The COVID-19 pandemic has caused a great deal of uncertainty for overseeing the investment of pension assets. For those managing investments, it’s important to understand the uncertainty and how it compares to past market challenges, as well as the importance of being aware of behavioural influences when making decisions.

Managing Pension Assets Through COVID-19 Uncertainty

The Uncertainty

Markets globally are down substantially and remain very volatile. The pace and magnitude of the equity market decline, along with the upheaval and limited liquidity in fixed income markets are extraordinary. In the shorter term, private markets have fared better, partly due to the lagged valuation compared to public market assets. In the coming months and quarters, the adverse impact on private market valuations will also be seen.

It is human nature to assess changes in wealth and asset market values based on the most recent level reached. For example, following a strong bull market, we all got comfortable with the levels reached by the end of February 2020. However, the reality is that markets do not move in a straight line, and there will always be setbacks.

Current total portfolio asset values for many investors will likely be similar to levels at the end of 2018; however, for some, they may be closer to levels at the end of September 2019. While this provides important perspective, it does not help alleviate the anxiety that is likely being experienced.

[Upcoming Webcast: Making Investment Decisions in a Time of Uncertainty | April 28, 2020]

Today vs. Past Challenges

The current situation is disconcerting for all of us and especially for those who have only experienced the challenges of the global financial crisis of 2008 or no market crises at all. Having personally experienced the 1987 stock market crash, the near depression in Canada in the early 1990s, the emerging markets and Asian crisis in 1997 and 1998, and the tech bubble and subsequent crash in 2001, I noticed that they all share a common theme—Though times were extremely tough in the moment, investors got through these events, albeit with some scars and lessons learned.

It is appropriate to acknowledge that things are different this time. This is not simply a financial crisis or economic crisis where the majority of us still go about our regular day-to-day routine. As a result of the COVID-19 outbreak, we are all experiencing an unfamiliar situation where everyone has been affected. Globally, people are forced to work from home where possible, or they have found themselves out of a job. Our daily realities have been significantly impacted, and many things we took for granted—coffee with a colleague or dinner with a friend—are not possible for the time being.

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These differences should not be dismissed. It is important to recognize the mental anxiety that uncertainty creates and the effect it has on our individual and collective well-being. The anxiety can also impact how we process information and how we approach decision-making.

The current environment is making it challenging to interpret information. It is almost impossible to avoid the feeling of being in an information overload haze or to be influenced by news and social media. This type of environment can lead to an increase in behavioural influences that negatively impact decisions. For example, many of us are guilty of confirmation bias, where we look for information to support what we want to hear—good or bad.

Managing the Challenges Ahead

To date, anecdotal evidence highlights that most investors are not making any dramatic changes to their portfolios and are expecting some form of stabilization and rebound. As far as when and how fast, it is still too early to predict.

An immediate challenge that investors are facing is how to meet current cash flow need. Many markets have limited liquidity, wide bid/ask spreads and selling equity assets that have materially declined, which requires moving from a paper loss to a realized loss. The current crisis has the added complication of dealing with professional and personal anxiety as we navigate these challenging times. It is not going to be easy, since there will still be many tough challenges ahead. However, if the past has taught us anything, it is that we will get through this—but we should not expect to come out of the current crisis with business as usual or without some lasting scars.

Learn More: Upcoming Webcast

Register now to attend the April 28, 2020 webcast: Making Investment Decisions in a Time of Uncertainty. The webcast will provide practical guidelines on how to manage and embrace uncertainty and prepare for the challenges ahead. Free to International Foundation and ISCEBS members.

Coronavirus Resources

Coronavirus and the Workplace

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Guest Contributor

Peter Muldowney

Peter Muldowney is Senior Vice President at Connor, Clark & Lunn Financial Group in Toronto, Ontario. Mr. Muldowney has over 20 years of experience in the investment industry, during which time he has worked in Canada, the United States and the United Kingdom. He spent the majority of his years in consulting, which included leading two major Canadian investment consulting firms. Mr. Muldowney then joined one of the leading Canadian insurance companies to start up a new business venture that led to his pioneering the first buy-in annuity in Canada. He later joined the multiboutique asset management firm Connor, Clark & Lunn Financial Group as senior vice president, institutional strategy, working collaboratively with institutional investors and consultants to find more effective ways to develop and execute investment and risk management strategies.

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