Conclusion

As of 1998, Canadian employer-sponsored pension funds have expanded to unprecedented size, individually and collectively, and have become a much larger institutional receptacle of national savings. This is mainly of significance to their integral social policy mandate of providing secure retirement income to working households as a supplement to public pensions. It is also significant, as never before, to the challenge facing the entire Canadian financial system to ensure that the country's savings are effectively and efficiently organized and directed to meet the productive investment and capital formation priorities of most consequence to a changing economy. A key measure of success in this regard is the long-term results for job opportunities in Canada.

Patience, Prudence and Jobs has been a preliminary, detailed investigation into many of issues and themes relevant to a pension investment role in Canada's transition and adjustment to a new economy and employment base. A critical aspect of this role is support for new and development SMEs in accessing capital, nationally, locally and by industry. As the CLMPC-PIAC survey of 1998 has confirmed, pension funds of all sizes encounter formidable barriers in this regard, primarily because of the information-intensive, management-intensive costs and risks of private capital markets that are intrinsic to all such investment activity. There are also barriers to enhanced pension participation in the low-capitalization end of public securities exchanges that also contribute to this process, and in real estate and infrastructure investing.

To overcome these barriers, organizational and technical innovations and financial specializations that are specific to individual capital markets and market segments must be developed. These must deal with the fact that such markets are comparatively small and, in some instances, not fully mature. Furthermore, to be effective, new strategic means must fully account for the fiduciary needs, constraints and marketplace outlooks unique to pension funds as multi-stakeholder, government-regulated financial institutions. If there is failure on this score, pension asset allocations will not occur or will not be sustained over time. Furthermore, as the 1980s experience in several Canadian private capital markets has abundantly demonstrated, failure once confirmed may preclude any return to them in future.

The following are some concluding observations on the Canadian capital market participation of pension funds, based on CLMPC research and interviews with pension managers, market analysts and practitioners:

• Pension investment in the venture capital market has fallen off outside of Quebec since the 1980s, though a rebound in participation may have occurred in 1997, led by large public sector funds or their money management institutions. Surmounting barriers identified in the CLMPC- PIAC survey is crucial to building on this trend nationwide and in provincial and local sub- markets. Externally-managed pools are especially vital to this result;
• Pension participation in the middle market, and in financing restructuring, traditional medium-sized firms, has been increasing since the early 1990s. Again, this has been at the initiative of large public sector funds or their money management institutions. Barriers identified by the CLMPC- PIAC survey are also key here if there is to be more pension supply, in-house or externally, to non-venture equity, mezzanine financing and term lending;
• Pension asset exposure to public equity has recently grown to reach 50 percent in aggregate. Though variously-sized private and public sector funds invest in small-cap stock issues, this appears to be restricted by structural inefficiency at the low-end of exchanges. More small-cap investment specialists and vehicles may be required to improve this situation;
• Canadian pension shareholder activism is on the rise, demonstrating features similar to activism in other countries. This includes a new interest on the part of labour and other pension stakeholders with regard to corporate governance issues. Ideally, this should be mutually beneficial to funds, stakeholders and publicly-listed firms, both large-cap and small-cap;
• Pension investment in real estate markets has declined overall since the 1990s, but has also shown some improvement in 1997. Though new asset allocations have come predominantly from large public sector funds or their money management institutions, real estate remains a focus of private and public sector funds of all sizes. Developmental real estate and infrastructure investing in future also requires the overcoming of structural impediments.