Canadian pensions feel the strain as private equity stumbles

Canada's largest pension plans reported weak private equity results for 2025 even as public equity markets delivered strong gains. According to the Financial Times, Ontario Teachers' Pension Plan (OTPP), which manages $279bn, recorded a private equity return of minus 5.3 percent, while the $145bn Ontario Municipal Employees Retirement System (OMERS) recorded minus 2.5 percent. OTPP's results were its worst in the asset class since 2008, and OMERS' were its worst since 2020. La Caisse, Quebec's $517bn pension fund, returned 2.3 percent from private equity against a benchmark gain of 12.6 percent, and the Healthcare of Ontario Pension Plan reported 3.6 percent from private equity and 2.1 percent from its broader private markets portfolio, compared with 11.7 percent for its listed holdings.

The Financial Times attributed the weakness to higher borrowing costs since 2022, which have affected dealmaking, returns and exit options. OTPP's Dale Burgess, executive managing director of equities, said investors had been "navigating increased cost of capital, more constrained exit markets and greater operating complexity, creating a drag on returns." OTPP's private equity portfolio fell from $60.4bn to $50.8bn, partly due to full or partial sales of stakes in BroadStreet Partners, Sahyadri Hospitals and Amica Senior Lifestyles. OTPP said it had made a "strategic shift" toward sectors where it sees a competitive edge, notably financial, services and technology. OMERS reported a $700m net investment loss on its $25.6bn private equity portfolio, citing industrial holdings and "weak performance across our earlier-stage growth and venture portfolios," and has recently announced sales including Paradigm and CBI Health. La Caisse attributed its results to "slow earnings growth for portfolio companies and lower multiples in the technology and healthcare sectors." Overall portfolio returns were supported by listed markets, with net returns of 6.7 percent for OTPP, 6 percent for OMERS and 9.3 percent for La Caisse.

Pressure is also building in private credit. According to the Financial Times, high-net-worth individuals sought to redeem more than US$10.1bn from some of the largest private credit funds in the first quarter. Blackstone, BlackRock, Cliffwater, Morgan Stanley and Monroe Capital limited withdrawals and have so far agreed to honour about 70 percent of requests. The affected funds manage roughly US$166bn, a small share of the approximately US$1.5tn direct lending market, though the redemptions reverse nearly US$200bn of inflows accumulated over five years. CT Fitzpatrick of Vulcan Value Partners said "the air has come out of the balloon," and former Pimco co-chief executive Mohamed El-Erian compared the turmoil to the early days of the 2008 financial crisis.

The New York Times noted that private equity typically absorbs losses before private credit lenders in a capital structure. It cited Vista Equity Partners, whose roughly US$4bn stake in Pluralsight was reduced to zero in 2024 when it handed the education software company to its lenders. Higher rates, weaker software valuations, a closed exit window and concerns that AI tools could disrupt the sector have strained the heavily leveraged software buyout approach used by Vista, Thoma Bravo and others. Vista founder Robert Smith said volatility was "being driven primarily by sentiment and uncertainty, not fundamental performance." The Times also reported that JPMorgan Chase has marked down some private credit loans, and that firms may have incentives to delay write-downs while awaiting lower rates and reopened exit markets.