Leverage on the Rise at Canada’s Top Pensions


The above graphic, courtesy of Bloomberg, shows how the use of leverage at Canada’s largest pension funds has changed over time.

Three out of the four funds are using more leverage now than at any other point in the last 10 years.

More from the Bloomberg article, which touches on the pressures leading these funds to make bolder investment decisions and the aggressive pursuit of talent that allows them to take those risks:

Canada’s public pensions, in contrast [to the U.S.], have been poaching top talent off Wall Street for some time. The ranks at the Canada Pension Plan Investment Board, which manages the nation’s primary public retirement fund, includes veterans from hedge fund Golden Tree Asset Management and private equity giant Carlyle Group, as well as investment banks such as Morgan Stanley, JPMorgan Chase & Co. and Goldman Sachs Group Inc., according to the CPPIB website.


Today, at least seven of Canada’s large pensions have “substantial” in-house hedge fund operations. By comparison, none do in the U.S. and only two do in Europe, according to data from the international pension fund consultancy CEM Benchmarking Inc. CEM, based in Toronto, declined to name the funds, but did say the five that have been at it the longest have beaten their benchmarks by an average of 0.9 percent annually over the last five years while the 10 largest U.S. funds have managed no extra return.

“In a world where safe investments provide unacceptably low returns, they have to move farther out the risk spectrum to get the kinds of returns they need,” said Malcolm Hamilton, a retired pension fund actuary who’s now a senior fellow at Toronto’s C.D. Howe Institute. “At the end of the day, you turn out being a hero or a goat, and there’s not much room in between.”

The whole Bloomberg article is worth a read.

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