Canadian pensions treat private equity like an ATM

Canada's major pension funds faced a significant reckoning in 2025 as private equity investments delivered their weakest returns in over a decade, starkly contrasting with robust public equity performance. Ontario Teachers' Pension Plan, managing $279 billion in assets, reported a minus 5.3% return from private equity—its worst performance since 2008. Similarly, the $145 billion Ontario Municipal Employees Retirement System posted minus 2.5% returns, marking its worst year in the asset class since 2020. La Caisse, Quebec's $517 billion state pension fund, fared slightly better but still disappointed with a 2.3% return compared to its benchmark's 12.6% gain. The Healthcare of Ontario Pension Plan reported 3.6% private equity returns alongside a 2.1% broader private markets return, both substantially underperforming its 11.7% listed equity returns.

The performance deterioration reflects the structural headwinds buffeting private equity since 2022, when interest rates began their ascent. Rising borrowing costs have materially constrained dealmaking velocity, narrowed exit options, and increased operational complexity for portfolio companies. These factors have created a drag on returns industry-wide, with one Canadian pension investor characterizing the results as "pretty dismal numbers" when private equity should be delivering a minimum of 15% annually. OTPP's private equity portfolio declined in value from $60.4 billion to $50 billion, embodying the asset class's recent struggles.

The scale of Canadian pension exposure to private equity underscores the significance of this performance gap. Canada's pension system is a major global private equity investor, with more than 20% of public sector pension capital—approximately $1.2 trillion across the country's largest funds—allocated to the asset class, according to think-tank New Financial. This concentration has amplified the impact of private markets' underperformance during a period when public equities delivered strong returns.

In response to mounting pressures, Canada's biggest pension funds are fundamentally restructuring their private equity strategies. Rather than continuing large direct investment programs, leading institutions are pivoting toward partnerships with established global buyout firms such as Blackstone and KKR. This strategic shift represents a pragmatic acknowledgment that the operating environment for direct private equity investment has shifted materially, reducing the competitive advantage of in-house deal teams while enabling access to larger, more diversified investment vehicles managed by specialists. Dale Burgess of OTPP acknowledged that private equity investors have been "navigating increased cost of capital, more constrained exit markets and greater operating complexity," signaling institutional recognition that the private equity model requires fundamental adjustment in the current interest rate environment.