The Canadian Pension Fund Model: A Quantitative Portrait

Authors:Alexander Beath, Sebastien Betermier, Chris Flynn, Quentin Spehner

Published: July 21, 2020. Available at SSRN

Abstract:

This paper presents a quantitative portrait of the Canadian pension fund model. We show that, between 2004 and 2018, Canadian pension funds outperformed their international peers both in terms of asset performance and liability hedging. We find that a central factor driving this success is the implementation of a three-pillar business model that consists of i) managing assets in-house to reduce costs, ii) redeploying resources to investment teams for each asset class, and iii) channeling capital toward growth assets that increase portfolio efficiency and hedge liability risks. This model works best for funds whose pension liabilities are indexed to inflation.