Pension funds can drive greater returns by participating more directly in value creation

Pension funds manage enormous amounts of capital, but they don’t create as much value as other players in the financial sector. Entrepreneurs, venture capitalists and private equity funds all play a more direct role in launching projects and creating value. But some Canadian pension funds have taken control of the value-creation process with investments in real estate, natural resources, infrastructure, and private credit, writes Associate Professor Sebastien Betermier in Wealth Professional. Betermier cites the example of the Ontario Teachers’ Pension Plan’s (OTPP) acquisition and privatization of the real estate company Cadillac Fairview. The OTPP didn’t only acquire the company and its assets, but also used its expertise to identify and pursue other opportunities in real estate. Still, this type of in-house project is not for the faint of heart, as it carries considerable risk, and each project has unique considerations. Yet, Betermier’s research shows that it is possible for institutional investors to create and capture more value – if they can stomach the risks and manage the project effectively.