Institutional Investors: Stewarding Long-Term Assets

Panelist Mandates and AUM Trajectories

• CPP Investment Board (Alan Carrier):
  • Manages excess capital separate from the statutory pension plan, currently ~$400 billion CAD.
  • Projects assets under management (AUM) to reach $1–2 trillion.
  • Maintains an aggressive growth trajectory with a long-term horizon, prioritizing value creation in scale.
• OMERS (Blake Hutchinson):
  • Total AUM is ~$100 billion, projected to double to ~$200 billion within 8–10 years.
  • Currently 10% allocated to the Asia/Singapore region; plans to double this allocation to $35–40 billion.
  • Expanding regional office in Singapore from 15 to 50 staff within 24 months.
  • Rebalancing geography to downweight Canada and US, increasing exposure to India, Asia, and Australia.
• Public Sector Pension Investment Board (PSP, Neil Cunningham):
  • Manages ~$170 billion CAD, growing at ~7% annually (doubling every 10 years).
  • Shifts from pure net inflows to a mixed profile where liabilities may eventually exceed inflows in 10+ years.
  • Targets an actuarial return of 4.1% real (plus inflation).
  • Currently holds a 50/50 split between public and private markets.
• Cathay Financial Holdings (Sophia Chen):
  • Largest financial group in Taiwan with ~$300 billion total group assets; ~$200 billion in Life Insurance.
  • Liability structure requires balancing long-term insurance promises against falling interest rates (liability cost dropped from 5.4% in 2007 to <4% today).
  • Allocates ~60% to fixed income, 12–15% to equity, 8% to real estate, and up to 3% to alternatives (capped by regulation).
  • Uniquely allocates ~$1 billion to startups/innovation, with dedicated offices in Silicon Valley and London.

Long-Term Asset Return Expectations and Rationale

• Partners Group expects private market returns to exceed public markets by 3–5% over a 5-year horizon in a base case scenario.
• Base case assumptions include 5-year global growth, ~10% valuation compression, and low inflation.
• Panelists disagree on whether current valuation expectations (cap rate expansion/multiple compression) should preclude buying; consensus is that high-quality assets command a premium despite short-term valuation headwinds.
• Private asset outperformance is attributed to the ability to hold through cycles, active governance, and the flexibility to manage capital structures.

Allocation Strategy to Private Markets

• CPP Investment Board:
  • Portfolio is ~65–70% private assets (including real assets, private equity, and private credit).
  • Shifted to emerging markets (33% of portfolio by 2025), with a focus on Asia (China/India) and South America.
  • Maintains fully in-house teams for direct investment, including the $55 billion Oxford Properties real estate platform.
• OMERS:
  • Portfolio is ~85% equity, 15% debt; private assets represent the majority of the equity component.
  • Utilizes a "core and satellite" approach for fund selection, transitioning to "core" status for managers with long-term track records.
  • Emphasizes co-investment and direct GP partnerships to access deal flow.
• PSP:
  • Private allocation split: 15% real estate, 13% private equity, 10% infrastructure, plus emerging strategies in agriculture, timber, and private credit.
  • Focuses on direct investment with specific GP partnerships for diversification and efficiency.
  • Actively builds "boots on the ground" teams to identify undervalued opportunities in dislocated markets.
• Cathay Financial Holdings:
  • Strictly adheres to a 3% cap on alternative investments, yet growing this bucket significantly due to scale.
  • Invests in infrastructure platforms (toll roads, airports, transmission) to secure deal flow and operational control.
  • Balances risk by maintaining 1–3 dedicated research teams per asset class and leveraging internal think tanks.

Governance and Stewardship Approaches

• Private Markets:
  • Governance is integral to value creation; ESG teams sit within value-creation units rather than as purely compliance functions.
  • Panelists note the risk of "performative" ESG in public markets versus operational integration in private deals.
  • Active owners sit on boards and influence management decisions directly (e.g., CPP's hands-on approach in real estate).
• Public Markets:
  • Engagement is limited to large-cap indices or active positions where significant stakes allow for board access.
  • PSP and OMERS view public market engagement as a collective action issue or rely on exit/entry filters based on values.
  • Cathay emphasizes that for public companies, governance is an "entry point" decision; if a company lacks basic governance, the fund exits.
• Market Bifurcation:
  • Leading institutional investors are shifting focus to mid-market public companies or private assets to exercise influence, leaving small-cap/retail funds with large-cap passive exposure.
  • This creates a divergence where top-tier investors can actively steward assets, while mass-market investors rely on broad indices.

Geopolitical and Macroeconomic Outlook

• Dislocation as Opportunity:
  • Panelists view geopolitical instability (e.g., Middle East conflicts, Hong Kong protests) as "noise" unless it represents a permanent structural change.
  • Deep local presence ("boots on the ground") is critical to distinguishing temporary disruption from long-term trends.
• Global Allocation:
  • Diversification across geographies and asset classes remains the primary tool for risk-adjusted return.
  • Emerging markets are targeted specifically to capture returns that compensate for higher perceived risk.

Talent Acquisition and Human Capital

• Sourcing and retaining top-tier talent is identified as the single biggest constraint and priority for scaling private market operations.
• Canadian pension plans leverage structural autonomy and competitive compensation to rival Wall Street/Global Asset Managers.
• "Social skills" and network-building capabilities are highlighted as increasingly critical over purely technical analytical skills for future generations.
• Talent density drives deal flow quality; high-performing teams attract other high-performing teams (the "great people attract great people" dynamic).

Future Trends and Competitive Landscape

• Public vs. Private Migration:
  • The number of public companies is halving over the last 15 years, driving capital toward private markets.
  • Talent migration is shifting toward private markets due to governance control and performance potential.
  • Despite the "winner-take-all" nature of private deals, panelists remain skeptical that the magnitude of future returns will match historical levels due to intense competition.
• Interest Rate and Liquidity Concerns:
  • Low fixed-income returns are forcing institutions to seek yield in alternatives.
  • Warnings issued regarding the risk of poor risk pricing discipline in private markets, which could lead to future social instability or financial disruption.