Pension plans seem to have the secret sauce says Hamilton Lane leader

An important allocation shift has helped pension plans navigate the storms

Pension plans seem to have the secret sauce says Hamilton Lane leader
Steve Randall

Canadian pension plans look after not just an eyewatering amount of money, but some of the most important – the funds that provide comfortable lifestyles for Canadian retirees – so they must make the right decisions.

And when things were challenging for equities and bonds in 2022, these investing behemoths increased allocations to private markets, which was a smart move that wealth managers should take note of according to Hamilton Lane’s head of Canada.

“…their significant allocations to private markets helped most of Canada’s largest pension plans stay positive in their most recent fiscal year,” Mike Woollatt wrote on LinkedIn.

While previously wealth managers and family offices would have struggled to access the kind of private market assets that helped Canadian pension plans win, when many others were not, Woollatt notes that this is no longer the case.

Read more: BNY Mellon report: Canadian pension plans maintain positive trajectory in Q2 2023 performance

Opening these investment opportunities to smaller investors enables them to diversify their portfolios in the hope of continued outperformance from private markets compared to public assets. Woollatt gives the example that “private equity has outperformed its public market equivalents in 22 of the last 22 years.”

A recent survey found that 60% of consumers are unfamiliar with private investments, even though their pension fund and other financial institution may have exposure to these assets.

What about the risk?

Investors and their advisors and wealth managers may be concerned about the risk often associated with private market assets.

But Woollatt says that both private and public assets come with risk. However, specifically with private equity, he points out that these assets tend to have more downside protection built in to their performance.

“The historical numbers bear this out; the worst five years in developed buyout (vast majority of the private markets) is still a positive 2.5%. The same is not true in public markets where the worst five years generated a -5.7% return,” he wrote in his article.