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National Pension Hub Publications

Valuation of Private Market Investments in Pension Fund Portfolios

The private asset market has grown from a niche investment in the 1980s to a stand- alone asset class today. Pension funds are increasingly looking outside traditional stock and bond markets to find opportunities to maximize returns and deliver sustainable value. Large pension funds in Canada have significantly expanded their private market investments in the recent years. To provide just one example, almost half of capital of CPPIB was allocated to private assets as of March 2017.

The growing importance of private assets in portfolios of pension funds raises numerous practical challenges. How should risks of such investments be assessed? What are the relevant benchmarks against which to evaluate performance? What are the expected returns of this asset class? What diversification benefits do private asset investments offer? Understanding the answers to these questions is crucial for funds that manage private asset investments themselves and for those that do it through external managers. In this proposal, we intend to tackle these issues.

Specifically, the goal of this project is to develop indices to serve as benchmarks for assessing private market investments by pension funds. Using these indices, we plan to assess risks of such investments, their fit in the overall portfolios of the funds, and study the effectiveness of these investments in improving funds' risk-return trade-offs. To achieve these goals, we plan to use anonymized data from pension funds and state of the art empirical methods. Using the provided data, we will build a basket of indices for private assets. We will study the factor structure of these indices and perform a series of portfolio tests. The results will allow us to speak on a number of key topics, including expected and realized returns of private asset investments, the priced and idiosyncratic components of the returns, and statistical and economic improvements in the risk-return trade-off that these investments offer. We also hope that the results will help pension fund managers make more informed asset allocation decision.



Rotman School of Management, University of Toronto


Mikhail Simutin







Mikhail Simutin

Mikhail Simutin is an Associate Professor of finance and Associate Director of research at the International Centre for Pension Management at the Rotman School of Management. His research focuses on studying institutional money management and understanding risks that affect asset prices. Mike’s research has been published in leading finance journals, including the Journal of Finance, the Review of Financial Studies, and the Journal of Financial Economics. He has received multiple research awards, including the Best Paper Award by the Review of Asset Pricing Studies and the Governor’s Award from the Bank of Canada. Mike has also received multiple teaching accolades, including being named one of the 40-Under-40 Most Outstanding Business School Professors. His research has been presented at numerous academic conferences and practitioner events.