‘We’re small enough that we can do some things the big guys don’t do,’ says UPP’s CIO
The University Pension Plan (UPP) might be a smaller pension plan compared to most in the country, but they certainly are mighty.
After reporting a 10.3 per cent net annual return for 2024, which pushed the plan’s total net assets from $11.7 billion to $12.8 billion, all while maintaining a fully funded status of 102 per cent, one wonders how did they manage it?
If you were to ask their chief investment officer, Aaron Bennett, he explains it was powered by return-enhancing and inflation-sensitive assets, even as some areas like real estate and interest rate-sensitive holdings came under pressure.
Even at four years old, the Plan seems to have made a name for themselves. As a mid-size jointly sponsored, defined benefit pension plan, UPP doesn’t aim to mimic the so-called Maple Eight, but Bennett sees the fund’s size as a competitive advantage.
“We’re small enough that we can do some things the big guys don’t do,” he said, highlighting niche areas like small-cap equities or $15–20 million co-investments, which are typically too small to interest larger plans, but are meaningful for UPP.
“It's easy to forget that when we started, there really wasn't a lot here,” he noted. “We've built the infrastructure and the teams and the strategies very quickly and have been implementing them ever since.”
For instance, he pointed to “a strategic decision” to move into private markets to benefit from the diversification and strengthen the plan’s long-term returns to provide their members the benefits of scale.
Since then, UPP has committed over $1 billion to private markets since 2022 and executed six fund partnerships and eight co-investments across all four private asset classes: real estate, infrastructure, private equity and private credit, as well as absolute return strategies.
These hedge-fund-like investments are particularly important to UPP’s investment strategy because they’re uncorrelated with traditional stock and bond markets, helping to insulate the portfolio from broader volatility, Bennett explained.
What began with a single person overseeing private markets has evolved into a full-fledged strategy with scale and structure, he noted, pointing to internalization efforts - bringing aspects of investment management in-house - as part of a deliberate move to apply the Canadian pension model to a mid-size plan.
He emphasized that diversification remains a cornerstone of UPP’s investment philosophy. Not just across asset classes, but also by geography and investment factors.
“In fact, our newly implemented risk system is really providing us with deeper insights and multiple perspectives on how we think about risk, as does our internalized expertise around responsible investing as well because that's a unique lens that isn't always necessarily obvious to those with a traditional financial education,” he said.
Despite the role of US equities being a driving force behind the Plan’s performance last year, Bennett doesn’t buy into the relentless optimism, noting the strength of US equities over the past two years has already prompted UPP to reassess its exposure well before recent market and policy disruptions took hold.
“Coming into the year, we had been looking at the risk being created by what had been two years of spectacular returns from US equities,” he said, noting growing concerns about valuation levels and the increasing concentration of gains in a limited number of large-cap names.
While UPP did reduce its US equity allocation heading into 2024, Bennett stressed that the move shouldn’t be mistaken for a broader retreat.
“We’re not in the de-dollarization camp,” he said. “We think the US is going to be something other than what it's been, which is possibly one of the largest, deepest, liquid markets across all asset classes. We expect [the US] to be prominent in what we do.”
That said, UPP has had to keep up with recent developments, ranging from tariff policy to tax changes, causing Bennett to take a more deliberate approach to new American investments.
To navigate this environment, the fund is running multiple scenario analyses to test the resilience of its allocations.
“We want to make sure that we’re always making those investments that are resilient to these changes and can still support our primary purpose of the fund,” he said.
Consequently, Bennett is paying close attention to the opportunity side of the equation. He pointed to Europe, emerging markets and even Canada as regions potentially positioned to benefit from global economic shifts.
Domestically, 44 per cent of UPP’s assets are invested in Canada, which Bennett considers substantial given Canada’s modest global GDP share.
While UPP’s overall asset allocation won’t shift dramatically in the next 12 months, the approach to managing risk is evolving, noted Bennett.
“We’re long-term investors, we spend a lot of time trying to find the signal through the noise,” he said.
“Certainly, the current environment provides us important indicators and milestones as to where we think things are going when we set our target asset mix out and we lay out our investment strategies. We manage long-term liabilities and the best way to build a portfolio that's resilient to fund those liabilities is to think longer term,” he added.
That long-term mindset doesn’t preclude agile thinking. Instead, it guides a careful assessment of “new investments that we’re making and some of the existing investments that we have.”
Bennett outlined several core differentiators that set the UPP apart from its larger peers. First and foremost is the plan’s tight alignment with the university sector, both in its structure and purpose.
“We’re designed for and by the university sector,” he said, noting that this gives UPP a distinct culture and a mission tailored to its members’ needs.
Unlike broader-based pension plans, UPP is focused on serving a specific academic community, which shapes both its strategy and its priorities.
Additionally, Bennett underscored UPP’s commitment to responsible investing. Not as a philosophical stance, but as a practical one.
“It’s not a values-based thing, it’s a value-based thing,” he said, underscoring that responsible investing is central to the plan’s ability to meet its fiduciary duty and fund long-term pensions.
Looking ahead, Bennett said the plan is seeing an increase in inflows, with five universities already participating – University of Toronto, Queens University, University of Guelph, Trent University and Victoria College. A sixth university - Wilfrid Laurier – is set to join next year.
“Over time, we hope more universities take an interest in what we’re doing, and they have been taking an interest,” he said. “It’s an exciting element that you don’t see in a lot of other pensions right now.”
