Skip to content

Invest like a pension fund

Big pensions funds carefully weigh towards real estate – and private investors should too
pension funds


With every Registered Retirement Savings Program (RRSP) season Canadians continue to invest billions into mutual funds or public market related products. According to the Investment Funds Institute of Canada, Canadians had a whopping $1.49 trillion invested into mutual funds as of January 31, 2018. That’s trillion with a T!

A random search of the top asset allocation mix for mutual funds will typically result in a mix of stocks vs. bonds. The ‘classic’ mix is 60 per cent stocks and 40 peer cent bonds during your growth stage and then reversing that in retirement. Regardless of the percentage allocated to stocks or bonds, 100 per cent of the typical portfolio for a RRSP is exposed to the public markets in one form or another.

So how do the investing habits of the average Canadian compare to those of pension funds, endowment funds or high-net-worth individuals? 

When I looked at these three groups, I found one thing they all had in common. Beyond diversifying within the public markets, they also added two specific non-correlating asset classe: real estate and private equity. In doing so, they reduce the volatility of their holdings, effectively hedging against all their assets being exposed to the same market factors that may cause wild fluctuations. I like to refer to this as “compressing the volatility curve”. 

One of the first to do this was David Swenson, who ran the Yale University Endowment fund. Swenson famously grew that fund to be worth over $20 billion largely through adding assets outside of the traditional stocks and bonds. He was so successful that other ivy leagues schools soon followed suit. 

A quick look at any pension fund – including the Canadian Pension Plan, will show solid investments in both real estate and private equity. You don’t have to look beyond the city of Vancouver to find multiple examples; pension funds are heavy into real estate. Many don't realize that Oxford (office buildings); Morguard (office and industrial and retail); and Ivanhoe Cambridge are all pension or institutional fund arms, or that the biggest modular home park owner in British Columbia is an arm of the BC Public Pension Fund.

When it comes to high-net-worth investors, a great example is to look at the ‘Tiger 21’ group – a peer-to-peer group of wealthy individuals who collectively manage approximately $35 Billion in investable assets. Statistics indicate that real estate has now become the No. 1 investment choice for members, with public equities and private equities tied in second place.

So what’s the common theme? Pension funds, endowment funds, wealthy investors and institutional investors all diversify their investments into a mixture of public markets, real estate and private equity. 

So that begs the question: if that’s the way these groups invest, why doesn’t the average Canadian invest their registered assets the same way?

Evidence would suggest very few do. Why?

Quite frankly, the average consumer looking to make a contribution into their registered funds will typically talk to their local bank or financial advisor. Banks are not positioned to offer private equity options and you can’t use registered assets to buy direct ownership of real estate. So if that’s the case, how can you invest like a pension fund?

The answer is to think outside the box. Private equity investments are widely available through exempt market dealers throughout Canada and can be RRSP or Tax Free Saving Account (TFSA) eligible, as long as you purchase them through a trust entity such as Olympia Trust Company or Computershare. 

Real estate as an investment may not be able to be held within an RRSP, but you can purchase units that are RRSP/TFSA eligible in a Limited Partnership that buys or develops real estate. A wide variety of these investments are available for the average Canadian.

All you need is a little research: education and awareness can change the way you retire for the better. Like the ad says, ‘it’s your money’ and you owe it to yourself to learn about all your options.

Happy investing.


Next: Sponsored Content | Limited Partnerships deliver real returns
Previous: Better to buy than lease