Canadian Pension Plans Are Private Equity Heavyweights

Canada’s public pension plans continue to be involved in high profile mergers and acquisitions globally despite the recent economic turmoil. They have developed a reputation as committed, patient investors who can understand and deal with the “J-curve” path of returns associated with many private equity investments. Their investments include passive limited partner investments in private equity funds, investments in fund-of-funds structures (particularly smaller to mid-size pension funds), direct investments either alone or as a co-investor alongside a private equity fund, and, increasingly, active direct and co-sponsored buyouts.

Several of the larger Canadian public sector pension funds have established long term relationships internationally with private equity firms. A pension fund may want to establish strategic relationships with a private equity firm where, for example, the fund wants access to specialized industries and markets where it does not have the resources or experience to invest directly, or where there is a high probability of co-investment opportunities and the manager or equity firm has a good record in the application of consistent management strategies.

While the Canadian pension plan investments continue to cover a wide spectrum of industries, two areas in which they have been increasingly involved are infrastructure (including, for example, utilities, roads, bridges and ports) and real estate. These assets can be attractive investments for pension plans due to their long term investment horizon, the possibility of stable returns and, in some cases, the relatively high rate of return.

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