Hedge fund crowd picks up the slack for beaten-down pension managers

Date: Thursday, May 22, 2008
Author: Andrew Willis, Globe and Mail.com

The traditional Canadian pension fund manager should brace for one depressing read in the latest instalment of Benefits Canada magazine's venerable list of the Top 40 Money Managers.

In general terms, pension assets are heading out the door at many traditional, long-only, domestic-focused fund managers. The money is going to folks with global mandates, or alternative asset management expertise - the hedge fund crowd.

Seventeen of the top 40 Canadian money managers saw their assets decline in 2007, a year that saw the total amount of pensions overseen by these funds grow 2.4 per cent to $741-billion.

This trend helps explain the consolidation trend that saw three big fund managers - Phillips Hager & North, Addenda Capital and Aurion Capital - sold in recent months to larger financial institutions.

Familiar names among the 10 largest pension fund managers lost ground last year. No. 8 ranked Jarislowsky Fraser, which was founded in 1955, saw its pension assets drop 12.9 per cent to $26.3-billion. McLean Budden, the 7th largest player and an arm of Sun Life Financial, was down 8.9 per cent at $26.6-billion.

Only one of the top 10 players - Connor Clark & Lunn - had better growth in 2007 than it did in 2006, noted Benefits Canada. CC&L, which is a multistrategy boutique, saw its pension assets grow 13.3 per cent to $20.3-billion, good for No. 10 ranking in the nation.

The worst carnage came at Capital Guardian Trust, which lost 38.9 per cent of its assets and bucks the trend to global managers, as it has offices around the world. Legg Mason Canada, another foreign-owned manager, posted a 30.1-per-cent decline. And Toronto-based Northwater Capital Management, which is caught up in the ABCP debacle, lost 25.2 per cent of assets. Northwater, with $5.7-billion of assets, recently cut 10 of 70 staff.

At the other extreme, Boston-based Acadian Asset Management rode an expertise in long-short hedge fund strategies and a global outlook to a 47.4-per-cent increase in assets, cracking the top 40 for the first time with $4.6-billion of Canadian pension funds.