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The survey, conducted in June and July, found 60 per cent of Canadian pension fund managers believe that over the long term, “volatility is increasing and market bubbles/crashes will become more frequent.”Feng Yu

Canadian pension funds are the most pessimistic in the world about coming market upheavals, reporting in a new global pension survey they anticipate market bubbles and crashes will become more frequent in the future.

A survey of 811 pension fund managers by Pyramis Global Advisors, the pension asset management division of financial giant Fidelity Investments, shows Canadians are concerned about future market volatility, while fund managers in Europe and Asia strongly believe market volatility will decrease in the long term.

"It really is polar opposite," said Derek Young, the U.S.-based vice-chairman of Pyramis.

The survey, conducted in June and July, found 60 per cent of Canadian pension fund managers believe that over the long term, "volatility is increasing and market bubbles/crashes will become more frequent," while 42 per cent in the U.S. agreed with the statement. However, only 4 per cent of pension managers in Europe and 5 per cent in Asia agreed volatility is increasing.

In Asia, by contrast, 91 per cent said they believe volatility is decreasing and market crashes will become less frequent, while 79 per cent in Europe supported that statement. Just 10 per cent in Canada and 7 per cent in the U.S. said they believe volatility is decreasing.

The survey included 90 Canadian pension funds representing about 25 per cent of all pension plan assets in Canada, Pyramis said.

Mr. Young said he believes the findings reflect the broader global focus of Canadian pension funds, saying funds in other regions are often more inward-looking and focus more on their regional markets. They may have responded based on a consideration of their own local economies, while Canadian pension funds may have been assessing the volatility more broadly in all major markets, he said.

"I do believe that Canada has a very unique and global perspective compared to most countries," Mr. Young said.

Bill Hatanaka, chief executive officer of OPTrust, which manages pension assets for Ontario government workers who are members of the OPSEU union, said the relatively small size of Canada's markets on a global scale means pension funds are forced to take a global investing approach and are "sensitized" to the potential for a variety of scenarios to create volatility.

"Our resource-based economy and its inherently cyclical nature has helped us to become more comfortable with anticipating volatility from economic cycles and events," he said.

Leo de Bever, chief executive officer of Alberta Investment Management Corp., which manages $75-billion of pension and other assets for the Alberta government, said he finds the views of European and Asian fund managers surprising, because "it seems reasonable to assume – as the Canadians did – that historically low volatility could not last."

"We had not seen a correction in a while, so it was bound to happen some time," Mr. de Bever said.

The fact equity markets have been so volatile this fall suggests the Canadian respondents may have had an accurate view in June about the likelihood of future boom and bust cycles, Mr. Young said.

"The Canadians were definitely positioned the appropriate way in terms of their thought processes, and certainly that expectation matched up with reality," he said.

The survey also found that fund managers around the world are more optimistic about the chances of meeting investment return goals over the next five years compared with two years ago when the survey was last conducted.

In 2014, 91 per cent of fund managers globally said they are comfortable they will achieve their annualized returns over the next five years, an increase from 65 per cent. In Canada, 96 per cent believe they can meet their goals, up from 60 per cent in 2012.

Although the survey was conducted before equity markets declined sharply this fall, Mr. Young said he believes the greater confidence is still likely prevailing because "these are long-term investors and we are asking about five-year views."

Julie Cays, chief investment officer at the Colleges of Applied Arts and Technology (CAAT) Pension Plan in Ontario, said many pension plans have lowered their return assumptions in recent years because interest rates remain low, which helps build confidence the targets can be met.

She said a major reason for concern about future volatility is the huge amount of liquidity the U.S. Federal Reserve has provided in recent years to stimulate the U.S. economy, which she said is an experiment that's never been tried on such a scale before.

"We don't really know what the effect of all this liquidity and all these low rates is really going to be over the long term, and I think people are nervous about that," Ms. Cays said.

Mr. de Bever sees reasons for optimism about returns in future years, saying while many assets are now fully valued, companies are still finding productivity gains and maintaining strong profit margins.

"That's likely to be true longer term, although one can make a case that the easy gains have been made for now," he said.