As stewards of the retirement savings for millions of Canadians, Canadian pension funds aim to ensure the responsible growth of their assets to meet their obligations to their members.

Pension plans are uniquely positioned to offer insights into geopolitical risk and global market volatility, given their long-term investment strategies. During the 'Investing in the Future – Navigating the North American and Global Economy' panel at the third annual US-Canada Summit, hosted by BMO and Eurasia Group, I moderated a discussion with: 

• 

  Blake Hutcheson, President and CEO of the Ontario Municipal Employees’ Retirement System (OMERS) 

• 

  Deborah Orida, President and CEO of the Public Sector Pension Investment Board (PSP Investments) 

• 

  Jo Taylor, President and CEO of the Ontario Teachers’ Pension Plan (OTPP) 

The leaders of these pension funds, which, combined, oversee trillions of dollars in assets, spoke about the current state of the public and private markets, including geopolitical and economic risks, investment strategies, asset allocation and opportunities at home. Here are a few highlights from our discussion. 

If anyone has seen his share of market cycles over his decades of experience, it’s OTPP’s Taylor. He may have said it best when asked about the state of the world: “From a geopolitical risk point of view, it’s as uncertain as I’ve seen it.”  

The issue for Taylor is determining whether this uncertainty will soon pass or if it represents more of a structural change. The pension fund is constantly evaluating if it has the right balance, including whether the U.S. is now riskier than it was in the past, given changing economic policies, said Taylor. 

“That’s not to necessarily say we won’t invest in the U.S. anymore,” he said. “It’s still going to be a popular destination, but I think we always try to make sure we get paid for the risk we take.” 

Volatility is also top of mind for Orida at PSP Investments. “We’ve come from an era where all of us as investors benefited greatly from globalization and lower rates, and that served us all very well,” she said. 

To guard against inflation and continued market ups and downs, PSP Investments currently maintains a roughly 50-50 mix of public and private assets. The pension also has about 40% of its assets in the U.S., which Orida described as “the deepest and most liquid market for investments, which we can’t ignore.”  

Hutcheson of OMERS is also still bullish on the U.S., which accounts for about half of the pension’s investments. “The U.S. is the most investable place, particularly in the short term,” he said.  

As for Canada, it was encouraging to hear everyone on the panel say the federal government’s commitment to invest in areas such as infrastructure and defense has made the country a more attractive place to invest. 

Orida put it succinctly, saying that PSP Investments wants to leverage its home-ice advantage in Canada. “We do see interesting opportunities in areas where we have expertise, like infrastructure, where we can find good investments for our pensioners.”  

OMERS is also considering an increase in its investment in Canada. “There’s a moment in time when we’ll do a lot more in this country,” said Hutcheson, noting that the pension is exploring opportunities in Europe as well. “Will it be at the expense of the U.S.? To be determined.”  

Hutcheson added that there have been barriers preventing OMERS from investing more at home, especially when it comes to federal infrastructure projects. “It’s not a demand problem, it’s a supply problem,” he said, but expects that to change. “There’ll be more opportunities in the next four years than we’ve seen in the last 25 years.” 

Given that Canadian pension funds have been a leader in the shift to private versus public assets, I took the opportunity to ask the panel where they see challenges and opportunities in this part of the market.  

PSP Investments has been investing in private credit since 2015, with annual returns averaging about 12%, explained Orida. Currently, her team is seeing opportunities in areas such as infrastructure, with investment-grade and longer-duration projects that require a more active role, compared to lower-grade finance assets in the past.  

At OTPP, Taylor said the pension has been active in private credit and equity and has a venture growth team that invests in early-stage, high-return businesses, yielding returns of between 8% and 20% annually. He said the private group is examining everything from real estate and infrastructure to commodities, while also monitoring the impact of inflation on various sectors.  

OMERS, however, has a greater exposure to private assets, accounting for approximately 60% of its assets, explained Hutcheson. The diversified private assets in the portfolio have historically provided stable returns averaging 8.7% over the past five years.  

That weighing towards private assets isn’t a concern for OMERS, which sees its size as an advantage within this part of the market. “In a difficult market, we’re the last people who need to sell,” he said.  

Given all the attention being paid to AI, I also wanted to explore how the technology was changing their businesses.  

Hutcheson said he recently sat with 25 CEOs from its private equity businesses and asked about the threats and opportunities with AI, but no two responses were the same – even within companies operating in the same sector.  

Orida said her team uses private versions of AI, where it can input data and responses to understand how it works and how it can be applied.  

OTPP is taking a similar approach. Apart from using AI to improve the way it services its members, it’s also working with its portfolio companies to help find opportunities for growth and spot risks. “There are winners and losers around AI,” he said, “and it’s our job to help them be more in the former camp.”  

As cross-border investors, these pensions are an important part of the North American economy. For our two economies to continue to grow together, investment capital from institutional investors such as these asset managers is crucial.     

Our conversation showed how Canada’s leading pension funds are adapting their strategies to excel in this period of global market volatility and rapid technological change.