National
Pension Hub

We strive to offer local pension design insights as well as globally-relevant pension investment and governance research to establish Canada as a source for leading pension research.

Impact & Use of Leverage


Pension funds are increasingly employing leverage within their portfolios. In Canada, for one, the nation’s six biggest pension funds saw an increase in average leverage from 19% in 2009 to 24% in 2017. Common sources of leverage include the use of derivative-based investment strategies, and fixed-income investments financed through the repo market, while less common examples include the use of synthetic equity or synthetic credit strategies.

Leverage-based investment strategies, when utilized correctly, can improve pension funds’ asset liability management by reducing asset liability mismatches (hedging) or improving the risk/return trade off. At the same time, however, these strategies can increase pension funds’ exposure to macroeconomic shocks and consequent fluctuations in available market liquidity.


TOPICS:

Impacts of Leverage on Risk Taking
Optimal Leverage Ratio
Impact of Taxation on Pension Fund Leverage