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Disappointing returns from private equity investments meant Canada’s big pension funds underperformed last year, as a downturn in the buyout sector weighed on some of the world’s largest investors in private assets.
Canada Pension Plan Investment Board, Ontario Teachers’ Pension Plan and Caisse de dépôt et placement du Québec and have all lagged their benchmarks over the past year, according to their latest reports.
A rise in global borrowing costs in 2022 and 2023 ushered a more difficult period for private equity, with fundraising and exits sluggish, while public equity markets benefited from a long bull market that lifted many pension funds’ benchmarks.
Despite a rocky period for private equity, the managers of the pension funds say their portfolios have performed as expected on a long-term view and are designed to rise less than wider stock markets in years of high growth while benefiting from limited losses in more difficult periods.
CPPIB, which manages C$714bn ($516bn) pension assets for 22mn Canadians, reported this week that its allocation to private equity — which makes up 23 per cent of the core portfolio — had been the biggest relative drag on its performance over the past five years.
Canada’s state pension fund manager said it was “not immune to short-term market shifts” and that on a 10-year basis it had performed as designed, with private equity delivering more than its reference measure. The total performance of the fund was also ahead of its benchmark over the past decade, CPPIB said.
Other Canadian Pension funds have also faced a period of weaker private equity returns relative to benchmarks and previous years.
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The private equity portfolio of Ontario Teachers’ Pension Plan, which has C$266bn of assets, delivered about half that of its benchmark portfolio of largely listed equities — dominated by big US tech stocks which soared last year. The previous year, the gap between the fund’s private equity returns and the benchmark was even larger.
However on a five-year view, OTPP’s private equity returns have been in line with its benchmark portfolio at 12.4 per cent.
OTPP said private equity had been “a highly profitable asset class for Ontario Teachers’ and remains an area of focus for the plan”.
Charles Emond, chief executive of the C$473bn (£253bn) Caisse de dépôt et placement du Québec, said that across five years the fund’s private equity portfolio had outperformed.
“2022 and 2023 was a bit of a pause in valuation, deal flow and money not coming back at the same pace as usual which led to some caution before being able to redeploy in the asset class,” Emond said.
“It’s been volatile a little bit but it’s still a very successful asset class for us and we want to keep deploying into it,” he added.
