What makes Canada's pensions flourish?

Just what is it about Canada that has allowed the country’s pension funds to flourish into the Goliaths they are today? It’s a question that preoccupies the private equity community, and plagues the pension and sovereign wealth funds that seek to replicate it.

“To me it’s fascinating why the Canadian pension funds, and not just OMERS, have developed in the way that they have relative, frankly, to the rest of the world,” says Mark Redman of Ontario Municipal Employees Retirement System.

“I would argue – I don’t see any evidence against this – the Canadians are global leaders in terms of the development of pension funds, certainly in terms of pension funds taking control and ownership of their own destiny.”

Even as an insider, Redman finds it difficult to put his finger on why that is. “My sense is it’s a combination of political [and] regulatory will. There were some visionaries, I suspect, within the Canadian pension fund community who were able to take politicians and regulators on that journey. There’s probably a cultural point. There’s a degree of maturity, I suspect, within the Canadian psyche to see things for what they are and to take responsibility.”

Redman points to the way the Canadian banking system came through the financial crisis relatively unscathed as proof of “a system that is quite sensible, that is quite prudent, that is quite careful, that sees the longer term, the bigger picture”.

That longer-term view encouraged OMERS to go ahead with opening a European office at the height of the crisis, when the prevailing view among North Americans was that “Europe was finished”.

“A lot of people thought we wouldn’t even be here in five years’ time. Why would a pension fund stick it out in difficult market conditions?” Redman says.

The sense of personal responsibility is arguably behind the decisive push Canadian pension funds have made into direct investing. Outsourcing investment management to a third party protects the fund’s trustees from blame if things go wrong.

“To be brave enough to actually believe that you can do better is an impressive leap of faith.”