Study delves into how the Canadian Maple 8 model goes beyond direct investing
Canadian pension funds have earned acclaim for their adept use of partnerships, resulting in higher returns and lower fees — a style of investing now recognized as the Maple 8 Canadian Investment Model. Managing over 80 percent of assets internally, these pensions outpace their global counterparts, prompting a study by PSP Investments CIO Eduard van Gelderen, University Pension Plan CEO Barbara Zvan, and McGill University researcher Sebastien Betermier.
“The objective of our study is to uncover insights into the process of value creation and capture what formal quantitative analyses cannot easily see,” the paper says.
Analyzing four Canadian pension deals, including CPP Investments’ acquisition of Antares Capital and PSP’s development of Mahi Pono, the researchers aimed to uncover the key factors behind their success.
The study found that these deals enabled pension funds to attain scale in diversified asset classes, providing a hedge against market correlations and inflation. The direct ownership approach further enhanced returns and reduced fees.
For instance, the Ontario Teachers’ Pension Plan's acquisition of Cadillac Fairview in 2000 allowed consolidation and growth of investments.
“Recent research shows that Canadian pension funds are significantly more invested in real estate than their global peers and the large real estate investments have resulted in a high degree of alignment between the funds’ asset and liability portfolios,” the paper says. “By having direct control, OTPP has a greater ability to mitigate risks throughout the life cycle of a project.”
CPP Investments' purchase of Antares Capital facilitated entry into the challenging mid-cap loan market, offering scale and reducing fees significantly. “Antares Capital is an interesting hybrid investment, giving CPP Investments exposure to both private equity investments (as the owner of the platform) and private credit investments (through the platform’s loans).”
Participation in large projects, like Mahi Pono, a Hawaii-based farmland company, and CDPQ's involvement in the Montreal rail system development, proved crucial for their success.
“Mahi Pono shows how the agriculture sector provides several advantages for large pension funds. These include a direct hedge against inflation, portfolio diversification, and ownership of the land which gives a floor in the valuation. In addition, because most investments in the agricultural space are private, pension funds have access to opportunities not available in public markets, and they can also earn a liquidity premium,” the study says.
These endeavors required substantial capital, but they were strategically positioned to generate long-term returns. “CDPQ’s direct involvement and near full control over the REM gives the fund a significant value creation opportunity that is expected to generate a long-term annualized return of 8-9%.”
Despite the notable successes, the researchers acknowledged the inherent risks in these large and illiquid deals. However, they emphasized that “the careful development of a distinct business model and ownership structure” mitigates these risks by aligning the incentives of various stakeholders.
“There is no cookie-cutter approach to these large and direct transactions,” the paper says.
