In a notable shift for Canada's leading pension funds, soaring public equities have become the primary engine of returns, overshadowing private investments that have long been favored for their potential higher yields. According to a recent Bloomberg analysis, stock portfolios of at least four of the nation's largest pension funds have propelled gains for three consecutive years, highlighting a resilient yet volatile market environment.
Public Markets Outperform Private Equity
For years, Canadian pensions have heavily invested in illiquid assets like private equity, infrastructure, and real estate, aiming to secure superior returns. However, this strategy has left them underexposed to a sustained global stock rally, just as private markets grew crowded and expensive. The analysis indicates that public equities have consistently delivered double-digit gains, defying warnings of stretched valuations and outpacing private equity returns, which have struggled to recover from a prolonged deal drought since 2022.
Key Pension Fund Performances
Specific examples underscore this trend. At the Ontario Teachers' Pension Plan, public equities returned 15 percent last year, while private equity posted its first loss since 2009. Similarly, the Ontario Municipal Employees Retirement System saw its stock holdings gain 12 percent in 2025, with its buyout portfolio ending in the red. The Caisse de Depot et Placement du Quebec reported an 18 percent gain in its stock portfolio last year, compared to a modest 2.3 percent return from private equity.
Global Stock Rally and Strategic Adjustments
Globally, stocks have surged in recent years, with indices like Canada's S&P/TSX Composite and Japan's Nikkei each climbing over 25 percent last year. While big tech companies have driven much of the U.S. rally, public equities have broadly outperformed. In response, some pension plans are recalibrating their strategies. For instance, Ontario Teachers' has increased its exposure to public markets to 18 percent as of end-2025, the highest since 2020, while reducing private equity holdings after asset sales and valuation markdowns.
Expert Insights and Future Outlook
Eduard van Gelderen, former chief investment officer of the Public Sector Pension Investment Board, noted in an email that many allocators relied on the idea of an illiquidity premium in private markets, but this has not materialized. With higher borrowing costs slowing private equity dealmaking and public markets surging—the S&P 500 is up about 50 percent since the Fed began raising rates—pensions are taking note. Ontario Teachers', overseeing $279.4 billion, is temporarily warehousing capital in public markets as it seeks new private opportunities, according to CEO Jo Taylor.
This dynamic reflects a broader reassessment in investment approaches, as public stocks continue to bolster Canada's crown-jewel pensions amid ongoing challenges in the private equity sector.
