Canadian pensions' use of derivatives rises

Fifty-two percent of Canadian pension funds now use derivatives as part of their investment strategies, up from 49% a year ago and 38% four years ago, according to a survey of 264 funds by Greenwich Associates, a Greenwich, Connecticut-based consulting firm.

Greenwich found that 13% of the funds invest in derivatives directly, while the remainder of the derivatives-savvy group do so through external managers. Of this latter group, half use derivatives to take exposures to foreign assets above the 30% limit set by Canadian regulators.

Canadian public sector and provincial funds are the most active users of derivatives -- 57% of those entities use them, according to the poll.

Pension funds sponsored by subsidiaries of US corporations are most active in using derivatives to skirt Canada’s foreign exposure limit -- 30% do so. Greenwich found that 45% of Canadian pension funds' exposures to US investments rely on derivatives.

According to the survey, 14% of Canadian pension funds do not use derivatives because they are banned by their investment guidelines, while 13% do not use them because their trustees or investment committee members are uncomfortable with the instruments.