James Langton of Investment Executive reports that according to Fitch, US pension giants are exposed to risky assets:

U.S. defined benefit (DB) pension plans are increasingly exposed to private credit and other risky alternative assets that could lead to funding troubles that ultimately strain government finances too, says Fitch Ratings.

In a report issued Monday, the rating agency said that in the wake of the global financial crisis, sponsors of public DB pensions took a variety of steps to improve the their plans’ solvency, such as increasing contribution rates, reducing benefits to new employees and adopting more conservative actuarial assumptions.

Even so, these plans generally remain underfunded and they’re also increasingly exposed to market risks. As other post-crisis trends, including higher allocations to alternative investments and steady demographic weakening “could amplify the effects of a market shock,” Fitch said.

The report noted that U.S. public pensions’ portfolio allocations to alternative assets had doubled since 2008 to 34% in 2024.

“Allocations to increasingly complex categories of alternatives can include leverage or variable rate strategies that expose investors, including pensions, to greater losses,” it warned.

In particular, private credit represents a “rapidly growing share of alternative investments, driven by [the sector’s] strong performance relative to traditional fixed income,” the report said — with many public pension funds increasing their exposure to private credit in an effort to drive higher returns.

For instance, California’s pension giant, CalPERS, recently raised its target allocation for private credit to 8%, up from 5%, “as part of a shift to 40% alternatives,” it noted.

Fitch also warned that the resilience of many of these alternative asset categories have not yet been tested in a downturn.

“The illiquidity of many alternative investments could also force plans with tighter cash flows to sell marketable assets at a loss to meet benefit or other obligations, such as capital calls,” it said.

As a result, negative market shocks could result in plans raising contribution requirements, it noted.

Additionally, Fitch said many plans’ demographics are weakening too — the ratio of active workers to retirees is declining, which “could exacerbate the effects of a market shock on pension contributions,” as the payout of benefits increasingly outpaces inflows from plan contributions.

Ultimately, this could add stress to government finances and their credit ratings.

“A major pension asset drawdown would depress portfolio values, raise unfunded liabilities, and lead to higher employer contributions, the report said. “This would take place just as governments would likely be grappling with economic and budgetary fallout from a downturn.”

While most governments should have the capacity to increase pension contributions, those with weaker balance sheets “could be most vulnerable due to budgetary pressure from increased pension contribution demands,” Fitch said. 

On Monday, Douglas Offerman and Sarah Repucci of Fitch issued a report, US Public Pension Market Bubble Exposure Remains High:

Fitch Ratings-New York-03 November 2025: Robust market valuations in recent years have supported funding progress for U.S. state and local defined benefit pension plans. However, public pensions remain underfunded and fundamentally exposed to market volatility. A market shock could increase the burden of state and local pension liabilities and drive contributions higher, says Fitch Ratings. Governments with weaker liability metrics and high carrying cost burdens could be most vulnerable to rating pressure.

Post-global financial crisis, plan sponsors took various policy actions such as reducing benefits to new employees, using more conservative actuarial assumptions and discount rates, and increasing contributions. This helped stabilize plans and support funding improvement. But other trends, including higher allocations to alternative investments and steady demographic weakening, could amplify the effects of a market shock.

According to the Public Plan Database, alternative investments outside of traditional equity, fixed income and cash were 34% of pension portfolios in fiscal 2024, double the fiscal 2008 level. Allocations to increasingly complex categories of alternatives can include leverage or variable rate strategies that expose investors, including pensions, to greater losses. Many of these alternatives have not yet been tested in a downturn. The illiquidity of many alternative investments could also force plans with tighter cash flows to sell marketable assets at a loss to meet benefit or other obligations, such as capital calls.

Private credit makes up a rapidly growing share of alternative investments, driven by strong performance relative to traditional fixed income. Many public pensions are raising their private credit exposure to drive returns and help address still-substantial liabilities. CalPERS, the gigantic California system covering most state and local workers, recently raised its allocation target to 8% from 5%, as part of a shift to 40% alternatives. Other pensions have pulled back due to unease about the sector’s rapid growth amid macroeconomic and credit quality concerns.

Many plans’ demographic trends continue to weaken, which could exacerbate the effects of a market shock on pension contributions. The median ratio of active employees to retirees in state plans dropped to 1.2x in fiscal 2024 from 1.7x in fiscal 2010, putting more pressure on plans to generate asset growth. Increasingly lopsided demographics play out in plan cash flows, with benefit outflows rising faster than contribution inflows. After a downturn, participating governments would be subject to bigger contribution increases to restore market losses. Risk-sharing with members through hybrid structures, variable benefits, shared contributions or other features has become more common since the GFC. But it remains far from universal, leaving governments principally responsible for absorbing plan losses.

A major pension asset drawdown would depress portfolio values, raise unfunded liabilities, and lead to higher employer contributions. This would take place just as governments would likely be grappling with economic and budgetary fallout from a downturn. Fitch believes most governments have sufficient flexibility to increase pension contributions, aided by built‑in lags such as asset smoothing that phase in losses over time. However, those with weaker liability metrics and higher carrying costs relative to total spending (e.g., exceeding 20%) could be most vulnerable due to budgetary pressure from increased pension contribution demands. 

This report is timely and necessary because over the last three years, there has been a tsunami of capital flowing into private credit.

And while most of the large state funds invest in sponsor-backed lending, there has increasingly been an influx on capital into non sponsor-backed lending. 

Worse still, payment-in-kind debt has taken off and with it, risks have grown.  

The underwriting standards vary from the larger/ more established private credit funds compared to the novice funds taking bigger risks to squeeze out bigger returns.

And Fitch is right, whether established or novice, the asset class has not been battle tested yet in a severe recession, separating the wheat from the chaff.

Yes, a few private credit funds were around in 2008 and survived, most haven't. 

How this all plays out over the next five years is of the utmost interest because we will see which pension funds are most exposed to riskier segments of private credit.

Already cracks are forming but it's still too soon to jump to conclusions. 

Nonetheless, Fitch is right to shine a light on this segment of the alternatives market and to point out which state pension plans are more exposed to a severe downturn.

What does this mean for Canada's large pension funds? They're also exposed to alternatives including private credit but the approach is different and risk management tighter.

Still, if a crisis unfolds, everyone around the world will be exposed.

Let's hope one doesn't happen anytime soon. 

Below, Sitara Sundar, Head of Alternative Investment Strategy at JPMorgan Private Bank, says while she doesn't believe the growth in private credit markets poses a systemic risk, pockets of idiosyncratic risk will bubble up. She speaks to Bloomberg's Matt Miller and Dani Burger on 'Open Interest.' 

Keep in mind, US banks' private credit exposure is roughly $300 billion, so bankers don't want to sound the alarm.  

Gigi Suhanec reports on how Canada's pension system ranks against the rest of the world's:

Canada’s pension system received a better score in an ongoing survey of programs around the world, but still has room for improvement.

Canada was given a grade of B, the same as last year, by the Mercer CFA Global Institute Pension Index 2025, but its score rose to 70.4 out of 100 from 68.4.

“We have a strong system,” F. Hubert Tremblay, partner and senior wealth adviser at Mercer Canada, said. “And one of the main strands of the Canadian pension system is that we have a diversified system with multiple sources of income into retirement.”

Mercer looked at the Canada Pension Plan, income supplement programs such as Old Age Security (OAS), the Guaranteed Income Supplement (GIS), workplace private plans and voluntary retirement savings like registered retirement savings plans and tax-free savings accounts to assess the state of the system.

“When I’m talking about multiple sources of income into retirement, I’m talking about all those pillars,” Tremblay said. “Yes, we are good with the government plans. The plans are not too generous, but they are sustainable over the long term, so that’s good and they have really good governance. That’s a strength of our system.”

Where Canada comes up short is in the area of workplace-sponsored plans, he said. They are good in the public sector, but much weaker in the private sector.

Mercer raised Canada’s score based on new information about the pension system’s creditworthiness, updated economic growth data from the International Monetary Fund and “clarification” regarding the protection of funds.

The index’s grading and scoring is based on three metrics: adequacy, sustainability and integrity, with grades assigned from A to E. Canada received grades of B, B and A in those three sub-indexes. The B-grade systems were described as having a “sound structure with many good features,” but they have “some areas for improvement that differentiate it from an A-grade system.”

The 2025 Mercer index graded 52 systems, covering 65 per cent of the world’s population.

Other countries that received Bs included Switzerland, the United Kingdom, New Zealand, France and Germany.

The Netherlands, Iceland, Denmark, Israel and Singapore were singled out as having the best pension systems in the world, all receiving As.

The most notable difference between the top countries and Canada was that they have mandatory private-sector workplace pension contribution programs.

Canada can improve its pension performance by increasing coverage for people, mostly in the private sector, who don’t have a workplace-sponsored scheme, increasing the participation of older people in the workforce to reduce the numbers of Canadians who are living longer, but may not have enough money to pay for their retirement, increasing household savings and reducing the ratio of government debt to gross domestic product.

Higher household savings could help fund retirement and controlling government debt is critical to ensuring programs such as OAS and GIS are funded.

Mercer also tackled the issue of the federal government urging major pension funds, which include but are not limited to the Canada Pension Plan, Healthcare of Ontario Pension Plan and the Ontario Teachers’ Pension Plan, to invest more at home.

In October, Industry Minister Mélanie Joly told the Financial Times that “I’ve had lots of conversations with our banks and our pension funds. There’s a sentiment that we need to think about Canada first and that we need to put capital where our mouth is.”

But a pension’s first priority is to provide retirement income for its members and their families.

Mercer recommended that governments offer direct subsidies, tax concessions, financial incentives and public and private partnerships to encourage the pension plans to invest more in Canada.

“Canada has so far asked and not constrained pension plans,” Tremblay said. “So, that’s in the direction we are suggesting.”

I think we can ignore Industry Minister Mélanie Joly's silly comments on pensions investing at home, she needs to stay in her lane.

Maple 8 CEOs have spelled it out in black and white, they don't want tricks, they want to invest more in domestic infrastructure. 

Will Carney's government finally partially privatize assets like airports, ports and toll roads so our large pension funds can invest in them?

I certainly hope so but I have my doubts and so do experts advising the federal government (one expert told me airports are a source of perpetual revenues for the federal government, they hardly invest any monies and collect great fees). 

We shall see what the Budget says on major projects and privatizing assets, I remain hopeful but skeptical.

As far as the Mercer CFA Global Institute Pension Index 2025, you can download and read more here.

Here are some of the global highlights:

Canada scored marginally better than last year but it's the same old story, despite having some of the best professionally managed pension funds, we are not covering enough Canadians adequately.

And relying on RRSPs, TFSAs, OAS and GIS to top out your paltry Canada Pension Plan benefit that pays for the groceries isn't a retirement strategy, you'll survive but be miserable.

What about housing? Hasn't this become Canada's de facto supplemental retirement program with the CHIP reverse mortgage? 

Sure, many homeowners are using it but read the fine print and understand what that means at the end of the CHIP rainbow.

I've been writing this blog for over 15 years and have been beating the drum, we need better coverage and we need radical change to cover private sector workers adequately with a gold plated DB pension, much like public sector workers enjoy.

Well, Leo, Canada's Big Banks don't want that, they want everyone investing in RRSPs and TFSAs. 

I couldn't care less what the banks want, I'm telling you we need radical change to significantly bolster our retirement system based on what works -- Maple 8 governance and long term performance.

Till then, I'll continue covering the Mercer CFA Global Institute Pension Index and keep repeating the same remarks. 

Below, Mercer Senior Partner Christine Mahoney joins host Mike Wallberg, CFA, to unpack key findings from the Mercer CFA Institute Global Pension Index 2025. She explains how 52 retirement income systems are evaluated on adequacy, sustainability, and integrity—and what those measures reveal about the resilience of retirement systems worldwide.  

The discussion explores government influence on pension investments, the principle of “retirement first,” and the role of policy incentives in balancing national priorities with member outcomes. Listen now to hear what’s driving pension reform and innovation globally.

Key findings:

• School bus driver employment has increased modestly in the last year but is still 9.5% lower than in 2019. 
• The recent increase appears to be driven by rising wages—school bus drivers have seen 4.2% real hourly wage growth in the past year, the quickest rate since the pandemic.
• However, the end of pandemic relief funds—in conjunction with the instability and attacks on public education by the Trump administration—threaten to reverse this recent progress.

The school bus driver shortage continues to play out across the country, making it more challenging for students to get to school and placing additional burdens on the K–12 public education system. As has been typical in recent years, the beginning of the school year brought forward a steady stream of reports documenting challenges schools are experiencing hiring bus drivers. Our latest analysis finds that school bus driver employment remains 9.5% below 2019 staffing levels.

But there are positive signs that school districts are taking steps to address the shortage. School bus driver employment overall has increased modestly in the last year, with growth in public K–12 schools likely being driven by increasing hourly wages for bus drivers.

It is important to note the available data likely do not fully capture the impact of the ending of pandemic relief funds or the instability for school districts created by the Trump administration. During the summer—a vital time for school district planning and hiring decisions—the Trump administration temporarily withheld $6.2 billion in funds from before- and after-school programs and teacher development. The Trump administration is also seeking to fully dismantle the Department of Education. Harsh anti-immigrant policies are also having harmful impacts on students and education staff. Under these circumstances, more time is needed to get a better sense of how policy changes during 2025 have impacted the K–12 education workforce.

Bus driver employment has grown modestly but remains far below pre-pandemic levels

The shortage of bus drivers is still acute and harmful to working families and their children. This fall, school districts in Missouri, Vermont, and Maine reduced bus routes and other bus services. These types of cuts can eliminate a student’s only way to attend school, including for students with disabilities who rely on buses to attend schools with enhanced special education services. Inconsistent bus schedules and routes can also contribute to absenteeism and missed school meals. Roughly half of all school children use a school bus to get to school, meaning a healthy public education system requires investment in these key support staff.

Figure A shows that there were 21,200 fewer (-9.5%) school bus drivers employed in August 2025 compared with August 2019. The private sector has experienced the largest decrease in employment, despite making up a small share of overall school bus driver employment. There are 12,800 fewer private school bus drivers than in 2019, a decrease of more than a quarter (-28.8%). State and local government school bus driver employment is down overall as well, but much less dramatically (-4.6%).

In the last year, school bus driver employment has grown modestly by around 2,300 jobs.1 This small increase (1.1%) is a step in the right direction, but the trend of the last few years remains mostly flat. Employment growth has been much stronger in the public sector than for privately employed bus drivers. State and local government school bus driver employment has increased by almost 9,900 since the fall of 2024, but private employment has fallen by 8,200 jobs over the same period.

To account for small sample sizes in the Current Population Survey (CPS), our employment analysis uses a 12-month rolling average of data, which means figures reported for August 2025 include data from September 2024. August 2025 data is currently the most recent CPS data available due to the ongoing government shutdown.

Figure A Rising wages may be driving recent increase in school bus driver employment

The recent increase in school bus driver employment appears to be driven by rising wages for these workers. Recruitment for school bus drivers can be difficult because it often requires a “split-shift” schedule coinciding with the beginning and ending of the school day. It is also a low-wage job, which contributes to school bus drivers experiencing poverty at greater rates than other employed workers. However, Figure B shows that hourly wages have grown steadily over the last year. In August 2025, the median hourly wage for school bus drivers was $22.45, 4.2% greater than last year when accounting for inflation.2

This level of wage growth has not been the norm over the past 15 years. For much of the 2010s, wages for these workers mostly stagnated. Austerity and budget cuts in the 2010s not only contributed to a steady decrease in school bus driver employment but also meant there were few resources available for school districts to invest in school bus driver wages. The apparent wage growth in 2020 was likely influenced by the large compositional changes in the labor market during the pandemic, when large numbers of workers—including bus drivers—dropped out of the labor force.  These dramatic changes in the labor force, in conjunction with the challenges of administering the CPS during the pandemic, mean we shouldn’t draw meaningful conclusions about wages for these workers during that period. More recently, the wage growth for school bus drivers in the last year stands out as a much-needed investment in this critical segment of the education workforce.

Figure B Other education support occupations still face shortages

Bus drivers were not the only education support occupation that experienced large declines in employment during the pandemic. In 2022, we documented significant employment losses in K–12 education overall, including teaching assistants, school custodians, and teachers. Figure C shows the change in employment between August 2019 and August 2025 for all K–12 education and key occupational categories. Overall education employment slightly exceeds its 2019 levels (1.4%), but the recovery has been uneven across occupation groups. The number of paraprofessionals (teaching assistants and early childhood educators) has grown 16.5% since 2019. However, administrative staff are slightly below their 2019 employment level (-3.0%), while teachers (-4.3%) and food service workers (-4.3%) have experienced more marked declines. Custodian employment is 12.4% below its 2019 levels, an even larger decrease than what school bus drivers have experienced.

Figure C Federal policy changes threaten recent progress, showing need for state and local action

The recovery in overall education employment has been fueled by the use of pandemic relief funds provided by Congress in 2020 and 2021. The Elementary and Secondary School Emergency Relief Fund (ESSER) allocated $189.5 billion to public K–12 schools to address the impact of the pandemic and reopen safely and effectively. Even for occupations like school bus drivers which have not seen a full recovery, the progress made in the last year has been heavily supported by these federal dollars. These funds ran out at the end of the 2024–2025 school year, and it is too early to say whether the end of this support will reverse this progress.

The Trump administration’s actions are also creating instability for these workers. The Trump administration is gutting the Department of Education, and with it, the oversight of billions of dollars that go to low-income school districts, civil rights protections for students, and special education programs. More threats to public education are on the way, including the creation of a national school voucher program in the Republican-passed reconciliation bill. When fully implemented, this program is likely to expand the use of school vouchers, which will drain resources from public school systems.

A healthy K–12 public education system needs strong bus driver wage growth to continue to bring more workers into the occupation, but instability at the federal level could jeopardize those trends as school districts scramble to account for changes in funding. Bus drivers play a vital role in providing a safe, supportive, and effective K–12 education system. In the face of tremendous federal threats, state and local lawmakers must do everything they can to shore up resources for public schools.

Notes

1. Total bus driver employment includes federal, state and local government, and private-sector workers.

2. School bus drivers tend to work fewer hours than typical workers, but weekly wages are also growing steadily (4.4% growth year-over-year).

Rian Howlett , Karen Friar and Laura Bratton of Yahoo Finance report Dow, S&P 500, Nasdaq climb to cap winning month as strong earnings, easing rates fuel Amazon, tech stocks:

US stocks bounced back Friday, with Wall Street notching weekly and monthly wins as investors embraced strong earnings from Amazon (AMZN) that eased some doubts about prospects for Big Tech.

The Nasdaq Composite (^IXIC) rose 0.6%, while the S&P 500 (^GSPC) gained 0.3%, both restoring solid gains after wavering earlier in the session. The Dow Jones Industrial Average (^DJI), which includes fewer tech stocks, rose 0.1%.

All three major averages ended the month with wins, with the Nasdaq gaining more than 4% for a second month in a row. The tech-heavy index scored its seventh consecutive monthly victory, while the S&P 500 and Dow notched their sixth month of wins in a row. All three indexes ended with solid weekly gains, as well.

Fresh "Magnificent Seven" earnings reports rekindled optimism for sustained growth for tech megacaps, easing concerns about overspending on AI infrastructure.

Amazon shares rose around 10% and closed at an all-time high, after its third quarter results easily topped analysts' forecasts. In particular, its cloud division, Amazon Web Services, posted a 20% jump in revenue, signaling renewed strength in enterprise demand.

Apple (AAPL) also tapped its own record on the heels of stronger-than-expected results and upbeat guidance for the all-important holiday quarter. The stock hit a high above $277 shortly after the market open but quickly reversed direction.

Elsewhere in tech, Nvidia (NVDA) shares fluctuated as the company made a fresh push into South Korea, saying it would supply as many as 260,000 of its AI chips to companies and the country’s government. Meanwhile, shares in Netflix (NFLX) held onto gains after the media giant announced a 10-for-1 stock split.

Federal Reserve officials stepped up to speak for the first time since this week's meeting, which brought an interest rate cut and revealed deepening divisions among policymakers. Kansas City Fed president Jeff Schmid said he would have preferred to hold rates steady, as inflation is "too high." Dallas Fed president Lorie Logan, who is not a voting member this year, said Friday that she would have preferred to hold steady.

Traders are paring bets on a rate cut in December. Just over 60% now expect one, compared with over 90% one week ago.

Sean Conlon and Pia Singh of CNBC also report Nasdaq and S&P 500 close higher, thanks to Amazon, to cap off a strong week:

The Nasdaq Composite and the S&P 500 rose on Friday, boosted by shares of tech giant Amazon on the heels of its strong quarterly results.

The tech-heavy Nasdaq advanced 0.61% to finish the session at 23,724.96, while the broad market index gained 0.26% to reach 6,840.20. The Dow Jones Industrial Average closed 40.75 points higher, or 0.09%, to 47,562.87.

Amazon shares rallied 9.6% after the e-commerce giant said its cloud computing unit’s revenue increased 20% in the third quarter, exceeding Wall Street’s estimates. The company’s CEO, Andy Jassy, said that AWS is “growing at a pace we haven’t seen since 2022” and that AI and core infrastructure are experiencing “strong” demand.

“AI adoption is picking up, which makes the business investments in growing computing power and functionality of Gemini worthwhile. This will be a key metric going forward as we now have more than $600 billion in CAPEX spending committed for next year,” Brian Mulberry, client portfolio manager at Zacks Investment Management, told CNBC.

Those on Wall Street bought up shares of other AI-related names Friday on the heels of Amazon’s results. AI software firm Palantir rose 3%, while leading AI player Oracle gained 2.2%.

“Investors will be paying attention to how that spending comes back to each company in the form of growing AI sales,” Mulberry said.

Supporting the Nasdaq, streaming giant Netflix added 2.7% after the company announced a 10-for-1 stock split. Electric vehicle maker Tesla was also a winner, with shares seeing a jump of 3.7%.

Friday marked the end of a strong week, and month, for Wall Street. The S&P 500 gained 0.7% this week, while the Nasdaq and Dow climbed 2.2% and 0.8%.

October — which has experienced some of the largest one-day losses in stock market history — saw the S&P 500 climb 2.3%. The Nasdaq jumped 4.7%, and the 30-stock Dow advanced 2.5%. The Dow posted its sixth positive month in a row for the first time since 2018. 

The US government has been shut down for 31 days as of today, basically the whole month of October and it's been a great month for stocks, especially tech shares.

Anyways, busy week with the Fed cutting rates by 25 bps this week but signalling further rate cuts are not assured. 

It was also a massive earnings week and a lot of companies beat and rallied sharply.

Just check out the top performing US large cap stocks this week (full list here):

There were also some big declines as well this week (full list here):

But in general, this is another strong earnings season with most companies beating expectations, propelling stocks higher.

Just look at the full list of companies whose shares are making new highs, among them you have: Apple, Amazon, Bank of America, Celestica, Cisco Systems, Edward Life Sciences, First Solar, Corning, Palantir, Roku, Snowflake and plenty more. 

Alright, Blue Jays vs Dodgers game 6 tonight, I'm rooting for Team Canada, Go Jays Go!!

Below, Fundstrat's Tom Lee joins 'Closing Bell' to talk November trading, the outlook for small caps and much more.

And Andrew Slimmon, Morgan Stanley Investment Management senior portfolio manager, joins 'Squawk box' to discuss the latest market trends, why he thinks the market has started to show signs of an increased level of speculation, his thoughts on the AI boom, and more.

Third, as investors make sense of surprising Fed guidance and a huge slate of earnings, what's the current state of sentiment around US equities — and which sectors could outperform into year-end? Shawn Tuteja, who oversees ETF and custom baskets volatility trading within Goldman Sachs Global Banking & Markets, discusses with Mike Washington.

Lastly, Paul Tudor Jones, Tudor Investment Corporation founder and CIO and Robin Hood Foundation founder and board member, joins 'Squawk Box' to discuss the latest market trends, state of the economy, his thoughts on the current bull market, state of the bond market, and more.

James Bradshaw of the Globe and Mail reports pension fund CEOs renew calls for Ottawa to sell key infrastructure assets:

The chief executives of Canada’s major pension funds are reviving a years-long campaign to persuade Ottawa and the provinces to sell key infrastructure such as airports, days before the release of a federal budget geared toward building up Canada’s sovereignty.

For years, Canada’s pension funds have lamented what they say is a lack of big-ticket infrastructure opportunities in Canada, as governments at all levels have held on to assets that would draw institutional investors’ interest if put up for auction.

The message to finance ministers about how to create the fiscal capacity for new investments in Canada is clear: “Look at your balance sheet and sell assets,” Gordon Fyfe, CEO of British Columbia Investment Management Corp., said at an event in Toronto held by the Economic Club of Canada on Thursday.

Mr. Fyfe cited airports, hydroelectric power and transportation assets such as highways as the sort of opportunities that grab attention from BCI, which manages $295-billion of assets, and other large funds.

That’s because they are existing assets with cash flows from stable contracts that deliver the steady but unspectacular returns that could help pay pensions.

“Especially with the deficits governments are running today, why wouldn’t they sell some of those assets to balance sheets like ours where we can hold those assets, and finance them?” Mr. Fyfe said. “They’re still in Canada. And I promise you we would compete like hell with each other, so the governments would get a very good price.”

The government could then use the proceeds from those sales to seed new projects developed from scratch, as outlined in Ottawa’s push to fast-track major nation-building projects, which often carry “much higher risk than a pension fund needs,” he said.

Deborah Orida, the CEO of the $300-billion Public Sector Pension Investment Board, said that PSP Investments owns and operates seven airports in places such as Germany, Scotland and Greece through its AviAlliance subsidiary.

“We have expertise. We’d love to apply it to our country,” she said.

The government has shown “some” interest in that pitch, she added. “We’ll see.”

All four CEOs who spoke at Thursday’s event – Ms. Orida, Mr. Fyfe, Ontario Municipal Employees Retirement System (OMERS) CEO Blake Hutcheson and Healthcare of Ontario Pension Plan (HOOPP) CEO Annesley Wallace – said they are hopeful they will be able to invest more money in Canada.

“There’s no issue with that at all, but don’t ask us to buy more public equities,” Mr. Fyfe said.

Canada’s major pension funds, which collectively manage $2.5-trillion of capital, have come under pressure from senior business leaders and finance ministers to invest more in Canada. The eight largest pension fund managers each have between 12 per cent and 50 per cent of their total assets invested domestically, according to the latest company filings.

Mr. Hutcheson of OMERS said that criticism ignores the fact that “it has been a supply problem, not a demand problem.”

“The biggest recognition the government has to make is, it’s okay for a Canadian pension fund to own a bridge or a port or an airport,” he said at Thursday’s event.

Ms. Orida and Mr. Fyfe also sounded a warning about the potential consequences for the funds’ members if Ottawa were to encroach on their independence to direct more investment to Canada.

Asked what keeps him up at night, Mr. Fyfe replied: “Interference.”

As government deficits swell, governments at all levels have turned their gaze to the vast pools of capital that pension funds manage as a potential catalyst to help spur growth and productivity with new business investment.

But “those pools of capital are there to support retirement, not government policy,” Mr. Fyfe said.

Ms. Orida also said that “losing that independence, I think, is what keeps me up at night.”

She cited the $15-billion Canada Growth Fund, which Ottawa entrusted to PSP Investments to manage in 2023, as an example of an arrangement that has worked. At its launch, pension experts raised questions about the CGF’s governance and independence.

But the fund has since committed $4.75-billion to new projects, and Ms. Orida said it shows there are ways pension funds can “help the country without having it forced upon us.”

Catherine McIntyre of The Logic also reports the Maple 8 want to buy Canadian airports and roads: 

TORONTO — The leaders of some of Canada’s biggest pension funds say governments should consider selling them public assets, like airports and roads, to bolster levels of domestic investment.

“There are a lot of great assets on the balance sheets of governments at every level,” said Gordon Fyfe, CEO of the British Columbia Investment Management Corporation (BCI), during a panel discussion at the Economic Club of Canada in Toronto Thursday morning. “Especially with the deficits they’re running, why wouldn’t they sell some of those assets to balance sheets like ours where we can hold those assets and finance them?” Fyfe said on stage. He added that pensions would gladly invest in Canadian airports, transportation and energy assets if they were available to buy.

OMERS CEO Blake Hutcheson agreed that Canadian governments need a “mind shift” about keeping big infrastructure assets private. He said part of their hesitation is that the low rate of borrowing for governments can make it cheaper for them, rather than pensions, to finance projects. “The biggest recognition the government has to make is that it is okay for a Canadian pension plan to own a bridge or a port,” said Hutcheson. 

PSP Investments chief executive Deborah Orida said Canada’s big pensions have plenty of experience investing globally in major public assets. “We have an airports platform. We own seven airports globally,” said Orida. “We have expertise and we’d love to apply it to our country.” 

Canada’s big pensions have significant infrastructure holdings globally. Ontario Teachers’ Pension Plan has held minority stakes in airports in Sydney, Brussels and Copenhagen. La Caisse bought a nearly 30 per cent stake in the Port of Brisbane after the Australian government privatized the asset in 2010. And the Canada Pension Plan Investment Board bought a 49.99 per cent stake in five Chilean toll roads in 2012 for $1.14 billion. 

Pressure for the Maple 8 to invest more in Canada has been ramping up for years, peaking with the wave of Buy Canadian sentiment triggered by U.S. President Donald Trump’s trade war. 

Earlier this month, federal Industry Minister Mélanie Joly implored the country’s big pension funds to invest more in Canada, as the government seeks $500 billion in new financing to boost the economy and lower Canada’s reliance on the U.S. 

Hutcheson said the political environment won’t change how OMERS invests in the short term. Over the medium term, however, he said Canada could benefit from the geopolitical and market shifts, including by attracting more pension investments. “We believe in this country,” he said. “We’re looking for opportunities to do more here.”

Fyfe said BCI would love to have more Canadian assets, but that investing in big new developments comes with a lot of risk that pension funds—with their responsibility to generate steady returns for retirees—aren’t always comfortable with. HOOPP CEO Annesley Wallace said HOOPP is keen to invest in new Canadian infrastructure projects if the government does enough to minimize those risks by, for example, helping facilitate the development and construction of the projects. 

Many pension leaders have historically resisted calls for domestic investment targets, emphasizing their mandates to maximize returns for their members in the long term. More recently, leaders have been warming to the idea of boosting their Canadian portfolios as the federal government signals greater support for assets that appeal to them. On the panel Thursday, however, Orida and Fyfe both emphasized that pensions need to remain free to invest without government influence. “Losing that independence is what keeps me up at night,” said Orida.

You might notice not much coverage of HOOPP's new CEO Annesley Wallace and her comments on the panel so I will embed this article from Bryan McGovern of Benefits Canada from a month ago where she stated HOOPP willing and ready to invest in Canadian infrastructure needs: 

The chief executive officer at the Healthcare of Ontario Pension Plan delivered one of the clearest signals to the Canadian market that the Maple 8 pension fund is open for business when it comes to infrastructure projects in the country.

“I think Canada needs more infrastructure projects,” said Annesley Wallace, chief executive officer at the investment organization, during a gathering for the Canadian Club Toronto last week. “There’s a real opportunity for the Canadian pension plans, including the HOOPP, to lean into those opportunities. Historically, we haven’t seen as much of those opportunities, particularly with the national level commitment, as we would have liked,”

She noted the investment organization is closely monitoring forthcoming investment opportunities, including a lineup of nation-building projects outlined by Prime Minister Mark Carney.

“My view is for sure to the extent that there are commercial models that are created around these projects and with government support, there will be lots of capital that comes to the table for investing with great success.”

Investment organizations like the HOOPP will require more clarity to navigate the investment model for these projects, she adds. The feds recently unveiled a new arm, the Major Projects Office, to fast-track projects through regulatory assessments and engage financing structures with provinces, territories, Indigenous Peoples and private investors. 

“My hope is that the Canadian pension plans can be a source of competitive advantage for the country, . . . we have capital that we would love to invest in Canada to help that economic engine and help improve productivity going forward but also because Canada needs to be competitive in order to attract, not just Canadian pension plan capital, but global capital.”

Wallace sees the HOOPP using a total portfolio approach that prevents isolating segments, an approach that makes the plan sponsor’s investment decisions stronger and more resilient. “The world is shifting and [we] must continue to shift with it.”

Wallace was named CEO at the HOOPP in April and since then, she has learned more about the intricacies of the health-care sector. She was previously executive vice-president of strategy and corporate development and president of power and energy solutions at TC Energy Corp. and also invested in infrastructure projects at the Ontario Municipal Employees’ Retirement System. 

Alright, so what are my thoughts?

I didn't participate, wasn't invited and junior was sick today (joys of daycare) so I spent my day looking after him and checking out markets when he napped.

I did try to find this panel discussion because it's four CEOs of major Canadian pension funds sharing their insights and they all know each other well.

Why wasn't I invited to moderate this panel discussion? Why did they choose fellow Greek-Canadian Vassy Kapelos and not yours truly?

Well, it's obvious, she's a lot smarter, younger, prettier and more pleasant to listen to and she really knows Canadian politics better than anyone. I'm sure she did a great job and asked the right questions.

I'm old, cynical, crusty and make some pension aficionados really nervous for some strange reason (I'm always nice and polite even when they're blowing smoke my way). 

Anyways, some quick thoughts on what was said today just from reading the articles above.

Basically the CEOs spelled it out in black and white for Ottawa. No tricks, just infrastructure treats.

They want to invest in major Canadian brownfield infrastructure assets where they can put huge capital to work and get assets that provide steady inflation-adjusted cash flows for decades to come.

And Gordon Fyfe was crystal clear, they're not interested in investing more in Canadian equities (public or private), they want to invest in airports, ports, toll roads, electricity transmission, hydroelectric power, digital infrastructure, basically the backbone of the economy.

He rightly notes that if the federal government does this right, it can reduce its debt by fully or partially privatizing these assets and have them managed professionally through a private-public partnership.

Blake Hutcheson notes that the government needs a "mind shift" to do privatize these assets and recognize that pensions can own these assets over the long run. 

Deb Orida mentioned PSP Investments' international airport assets managed by their wholly owned subsidiary Avi Alliance and she said the government is warming up to selling stakes in major airports.

Annesley Wallace has already noted that governments need to create the right conditions to attract HOOPP and other domestic and international pools of capital and they stand ready to invest when those conditions are realized.

On independence, both Gordon Fyfe and Deb Orida said that government interference keeps them up at night.

That whole AIMCo purge sent a jolt through all the Maple 8 funds. In the back of every Maple 8 CEO's mind is can this happen to us? (it can but it's not likely)

Also, independence assures a very generous compensation framework allowing them to attract and retain top talent across public and private markets to internalize asset management (and enjoy huge bonuses if they deliver solid long term returns).

Deb cited the Canada Growth Fund as a successful venture between government and a major pension fund where they can “help the country without having it forced upon us.”

Last week I discussed how the Canada Growth Fund is investing in a major greenfield on four small modular reactors (SMRs) project in the Darlington New Nuclear Project (DNNP) in Bowmanville, Ontario. Read my comment here.  

To my surprise, a few experts reached me after ward to tell me they were skeptical this new technology would work and that this project will provide reliable energy to Ontario for decades to come. 

Moreover, they told me they think costs will balloon and this project will severely strain Ontario's debt profile.

I hope these skeptics are proven wrong but as I stated, there are always risks with greenfield infrastructure projects which is why pension funds prefer brownfield ones with known revenues (not always, La Caisse invested US$2.3 billion in the UK's Sizewell C nuclear plant, getting the right terms early on; read my comment here).  

Alright, let me end it there. 

If this event is posted online, I will embed it in this post.

Below, take the time to listen to HOOPP's CEO Annesley Wallace from a month ago at the Canadian Club Toronto on the critical role HOOPP plays in securing the financial futures of its members (I covered it in more detail here).

Emma Dunkley of the Financial Times reports private equity executives flock to pensions:

Private equity professionals are on the lookout for a new home. 

Big pension funds are scooping them up as they seek refuge from a downturn in the sector that has restricted the carried interest payments that traditionally made up most of their pay, write Alexandra Heal and Mary McDougall. 

Professionals from mid-market buyout groups in particular have been flooding pension plan recruiters with their résumés in a bid to escape the private equity fundraising squeeze. 

“We are finding it easier to attract talent — not super easy, but much easier than three or four years ago,” said Ralph Berg, chief investment officer at the Ontario pension fund Omers. 

“I suspect a lot of the private equity firms are struggling to hold on to people or maybe they want to manage . . . headcounts too.” 

British Columbia Investment Management Corporation, which manages assets for public sector pensions, hired about 20 people in the past two years from buyout firms due to “fundraising issues” at those groups, a person familiar with the matter said. BCI’s private equity team has 70 people in total, according to its website. 

The experience of the Canadian pension plans is the latest sign of how a prolonged downturn, initially ushered in by 2022 interest rate increases, is rippling through the financial sector. 

The higher cost of borrowing hampered dealmaking and left firms with less cash to return to their institutional backers. This in turn reduced how much money those backers could recycle into new buyout funds.

Private equity groups raised just $592bn in the 12 months to June, their lowest tally for seven years, data from Preqin shows.  

Alexandra Heal and Mary McDougall of the Financial Times also report pension funds scoop up ex-private equity executives:

Big pension funds are scooping up private equity professionals seeking refuge from a downturn in the sector that has restricted the carried interest payments that traditionally made up most of their pay. 

Professionals from mid-market buyout groups, in particular, have been flooding pension plan recruiters with their résumés in a bid to escape the private equity fundraising squeeze. 

 “We are finding it easier to attract talent — not super easy, but much easier than three or four years ago,” said Ralph Berg, chief investment officer at the Ontario pension fund Omers. 

 “I suspect a lot of the private equity firms are struggling to hold on to people or maybe they want to manage . . . headcounts too.” 

British Columbia Investment Management Corporation, which manages assets for public sector pensions, hired about 20 people in the past two years from buyout firms due to “fundraising issues” at those groups, a person familiar with the matter said. BCI’s private equity team has 70 people in total, according to its website. 

The experience of the Canadian pension plans is the latest sign of how a prolonged downturn, initially ushered in by 2022 interest rate increases, is rippling through the financial sector. 

The higher cost of borrowing hampered dealmaking and left firms with less cash to return to their institutional backers. This in turn reduced how much money those backers could recycle into new buyout funds.

Private equity groups raised just $592bn in the 12 months to June, their lowest tally for seven years, data from Preqin shows. 

Tougher fundraising has led to lower revenue streams for buyout firms from management fees, leaving them with less cash to hire talent. Smaller firms have struggled the most with fundraising as buyout fund backers have flocked to larger groups which are seen as more reliable. 

Berg of Omers said that the red hot mergers and acquisitions market in 2021 had made that a tough year for pension funds to retain staff. 

But the more subdued dealmaking environment that has endured since meant that “people — especially juniors — have seen that there [have] been fewer deals to work on”, Berg said, adding that “they fundamentally worry that they are not . . . building up their CVs”. 

“All of a sudden,” he added, “those employers that have their own capital and don’t depend on fundraising in order to make new investments and have more sustainable [compensation] structures with a higher level of predictability now look attractive.” 

BCI declined to comment.  

Great interview with OMERS' CIO Ralph Berg explaining why the subdued dealmaking environment in private equity is making it easier to attract and retain industry people at Canada's large pensions, especially juniors who need to build their resume.

Why are they "flocking" (and I take that verb with a grain of salt) to Canada's large pension funds?

A lot of reasons, the macro environment isn't right for private equity, rates remain stubbornly high, there's too much competition, small to mid sized firms are struggling, apart from tech, exits are tough, fundraising is tough, LPs aren't re-uping as fast as before and they're far more stringent on valuations and what they expect.

All this to say, if you want to make big bucks, try sticking it out with a GP but chances are you'll lose your job as assets dwindle, or join a top LP (ie a Canadian pension fund), make a decent living building a nice private equity portfolio without the pressure of delivering returns every three to four years.

And Ralph Berg is right: “All of a sudden, those employers that have their own capital and don’t depend on fundraising in order to make new investments and have more sustainable [compensation] structures with a higher level of predictability now look attractive.”  

As far as BCI, Jim Pittman who heads that group pitched an idea to CEO Gordon Fyfe a few years ago to open an office in New York City and run the private equity team out of there and it's been working great (OMERS has an office there too).

He's been able to attract quality staff at all levels (not just juniors) and he's in a city where he can easily meet with top strategic partners and be closer to dealmaking activity. 

In short, it's a win-win for everyone especially BCI's members as their private equity team has a pulse on activity real time and it's a highly qualified team of professionals that understands value creation, how to structure a proper portfolio diversifying across sectors, geographies and vintage years and the proof is in the pudding (BCI's private equity team has some of the best long-term returns in the pension industry). 

Now, how long will tough times last in private equity? Nobody really knows, rates are coming down in the short run as central banks cut but the inflationary environment remains a wild card, and that means things might remain tough for a lot longer.

All this to say, it doesn't surprise me that Canada's large pension funds are able to attract quality people away from private equity firms.

OTPP's CEO Jo Taylor told me a long time ago that when the cycle turns in PE, it's easier to go hunting for talent and that's what is happening.

Below, fewer deals, long wait times for returns on investments. Struggles with fundraising. Even with an interest rate cut, private equity, which thrives on flipping and selling companies for a profit, is in a slump. What would it take for the industry to bounce back?

On The Big Take podcast (from last month), Bloomberg's private equity reporter Allison McNeely discusses what’s contributing to an existential slowdown that has private equity firms scrambling to find a path forward.

Listen carefully to her comments, she's spot on, great insights.