Why Canadian Pension Plans Succeeded With Some of the Industry’s Largest Deals

The Canadian Maple 8 model is not just about direct investing.


Illustration by II

Canadian pension plans are masterful at leveraging partnerships to ink higher returns and lower fees — so much so that their style of investing has its own name.

The so-called Maple 8’s Canadian Investment Model has long been revered among asset owners. These pension plans manage more than 80 percent of their assets internally, double the amount of their global peers.

But managing assets in-house is not the sole driver of their success.

In fact, PSP Investments CIO Eduard van Gelderen and University Pension Plan CEO Barbara Zvan teamed up with McGill University researcher Sebastien Betermier to study these pension plans to see what, exactly, helped them succeed.

They looked at four major Canadian pension plan deals, including CPP Investments’ acquisition of Antares Capital and PSP’s development of Mahi Pono, to determine what has worked.

The trio found that these deals helped the pension funds achieve scale in diversified asset classes that were not correlated with the rest of the markets. This, along with direct ownership, has helped bolster returns and reduce fees.

“The objective of our study is to uncover insights into the process of value creation and capture what formal quantitative analyses cannot easily see,” their paper said.

They found that these projects helped Canada’s pension plans achieve scale and efficiency in markets that helped them hedge against inflation. For example, the Ontario Teachers’ Pension Plan acquired real estate owner and operator Cadillac Fairview in 2000 and has since been able to consolidate and grow investments via the company.

OTPP’s involvement in Cadillac Fairview has not simply been as an owner. The pension fund also operates the properties it owns, which gives it greater control.

Meanwhile, CPP Investments’ acquisition of Antares Capital, a private credit firm, has allowed the fund to make inroads in the mid-cap loan market. This market is illiquid, often unrated, and not syndicated, which makes it challenging to deploy a large pool of capital well.

“The problem is that this results in high fees,” the paper said. “By purchasing Antares Capital, CPP Investments was able to efficiently achieve scale through the platform’s size, established market position, and its relationships.” When CPP acquired the firm in 2015, it was valued at $12 billion. Today, Antares manages and administers $61 billion and invests around $34 billion on behalf of outside investors.

The participation of the pension funds in these large projects can actually be a necessity for their success. In the case of Mahi Pono, a farmland company based in Hawaii, the project was complicated and risky to set up. PSP was able to contribute a large amount of capital, buying up the entire parcel of land, which allowed it to become an effective operator. PSP partnered with a local operator to re-develop the land after it sat idle for years.

Similarly, CDPQ’s participation in the public-private partnership that will develop a new rail system in Montreal (Réseau express métropolitain) gave “credibility” to the project and has made it “possible to coordinate multiple stakeholder groups, including the local communities and public authorities whose buy-in is critical to the long-term success of the ventures.”

Although this program requires significant start-up capital (CDPQ contributed CAD 3.3 billion of the total CAD 6.9 billion necessary), it’s projected to generate a long-term annualized return of 8 to 9 percent.

These deals don’t come without risk. Because they are large and illiquid, the pension funds have to find ways to manage these characteristics. According to the researchers, “We find this risk is mitigated through the careful development of a distinct business model and ownership structure that aligns the incentives of the different stakeholders.”