But there’s no such thing as a Canadian pension fund model, according to Sebastien Betermier, executive director of the International Center for Pension Management.
Speaking at the Pensions and Lifetime Savings Association’s Investment Conference in Edinburgh, Betermier said each fund was different with different target clients, making use of different operational structures.
On the other hand, he explained that there were important similarities. Canadian pension funds are large, with considerable in-house expertise and are commercially astute.
“They’re all public, but they’re run like private sector corporations,” said Betermier. “They have a governance system and delegation framework which is such that they’re able to pay market salaries.”
This attracts the most talented individuals and allows these funds to dedicate up to 23% to private assets – when global peers might have 10% on average – while cutting overall costs by up to one third.
Success has been founded on strong governance and the ability to act as long-term investors without the shackles of solvency regulation, which gives Canadian funds the ability to take risk over the long term.
As Betermier explained: “They have the ability to, in some cases, have a total portfolio approach focus, where the team is responsible for the whole asset allocation.”
This has allowed funds like the Canada Pension Plan to go far deeper into developing investments beyond simply allocating capital to them.
The importance of independence
In order to maintain that long-term focus, funds must remain independent of the shifting tides of political influences, said Betermier.
“A lesson from Canada is that there is no such thing as being 90% independent,” he said. “Independence matters in those critical times when entering turbulent markets or turbulent political times.”
That depends on robust governance structures, Betermier added.
“The devil is in the detail,” he explained, in order “to ensure the board can retain independent oversight from policymakers, so that even when the political spectrum shifts the fund continues”.
