CEM | Research Insights No. 30 | The Canadian Pension Model - A Quantitative Portrait

Original Research

The Canadian Pension Fund Model: A Quantitative Portrait

Alex D. Beath, Sebastien Betermier, Chris Flynn, and Quentin Spehner

[Note: This article was published in the March 2021 edition of the Journal of Portfolio Management (JPM). If you subscribe to the JPM, you can access the article here. If you don't, but want to get a copy, let us know by filling out the form below. There is a chance we can get a copy for you in the future (Now, the JPM owns the copyright of this article)].

This article presents a quantitative portrait of the Canadian pension fund model. The authors show that, between 2004 and 2018, Canadian pension funds outperformed their international peers in terms of both asset performance and liability hedging. A central factor driving this success is the implementation of a three-pillar business model that consists of (1) managing assets in-house to reduce costs, (2) redeploying resources to internal investment teams for each asset class, and (3) 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.

CanadianModelQuantitativePortrait-Cover-2_1

Key findings:

From 2004 to 2018, Canada's pension funds outperformed their peers in terms of investment performance and insurance against liability risk.

The Canadian model is cost-efficient, not low cost. Canadian funds reduce costs by managing asset in-house and then redeploy resources by growing their internal capabilities and allocating more capital to strategic assets.

The Canadian model works best for funds whose pension liabilities are indexed to inflation.

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