National Pension Hub Publications

Drivers of Successful Pension Investing:

Lessons from the Canadian Model

Sebastien Betermier, Associate Professor of Finance, McGill University


Summary

Over the past decade, the literature on retirement investing has shifted its attention away from the DB model and toward the DC model in response to the decline of the DB industry in the US and throughout the World. The Canadian pension model, however, provides a remarkable counter-example to this trend (see The Economist 2012 ‘Maple Revolutionaries,’ Ambachtsheer 2016, and the World Bank Report 2017). The Canadian model has demonstrated that the combination of good corporate governance, competitive employee compensation schemes, hybrid plans that share risks with pensioners, and controlled investment risk-taking makes it possible to sustain pension programs over the long-term even in the challenging environment of low interest rates and high life expectancy.

In this study, we aim to understand how Canadian pension funds directly invest in private markets in comparison to their international counterparts. We focus our attention on the real estate sector in which Canadian funds have been particularly active, and analyze hundreds of real estate transactions made by Canadian and non-Canadian funds over the past 20 years.