Figures 4 and 5 illustrate some of the major directions taken, and long-term patterns seen, in Canadian pension asset allocations, in aggregate, since the mid-1980s. Three essential developments stand out with respect to the sources of investment earnings, and from an economic perspective.

The first of these is heightened pension exposure to public equity investing. According to Statistics Canada, bonds represented by far the biggest proportion of total assets (over 44 percent, at market value) a decade or more ago, but fell to just 31 percent by 1996. Today, direct investment in stocks, at over 38 percent, has replaced bonds in pre-eminence. If Statistics Canada estimates of indirect investment (including foreign holdings) are incorporated, this level moves closer to the 50 percent mark.^{Endnote 27} Benefits Canada data paint a similar picture in the public equity holdings (both national and international) of large funds. At the end of 1997, this level was almost 54 percent.^{Endnote 28}

Neither data source provides a breakdown of pension holdings of stocks by market capitalization size classifications (e.g., large-cap versus small-cap) utilized in Canadian public securities exchanges (see Pension Funds and Public Equity Investing). This is unfortunate, considering the unique qualities of what some fiduciaries regard as a separate or special equity sub-class in small-caps.

While the public equity investing of Canadian pension funds is more substantial in of the 1990s, overall asset exposure remains lower than that of counterparts in the United States and the United Kingdom. In these countries, such investing is typically around 60 and 80 percent of total assets, respectively.^{Endnote 29} Some individual pension funds in this country, such as Ontario Teachers PPB, have opted for these comparatively higher thresholds. Others may be moving in this direction, such as the pension funds associated with the Caisse de dépot, heretofore restricted in public equity investing under provincial law.

A second development in pension investment is greater diversification into capital markets in the United States and overseas. As indicated before, Canadian law restricts pension portfolio assets held in foreign securities to 20 percent of the total. A few years ago, funds were nowhere near this level, however, as Statistics Canada and Benefits Canada report, this situation has changed. In fact, with an average foreign disbursement of 21 percent in 1997, targeted mainly to public equity securities, large funds may have exceeded the legal cap were it not for fiduciary use of derivative products to gain supplementary and indirect access to international financial returns.^{Endnote 30} Despite this, PIAC and its membership believe that existing curbs on foreign investment are untenable and should be removed by the federal government.^{Endnote 31}

The bullish, high-price stock-picking and low inflation of the mid-to-late 1990s that have shaped the recent investment preferences of pension funds also appear to have contributed to a somewhat reduced emphasis of alternative/non-traditional asset classes. In 1997, Benefits Canada reported that so-called "bottom-feeder" assets like real estate and venture capital were declining in pension fiduciary esteem and portfolio exposure, due partly to the new favour being shown to investing abroad.^{Endnote 32} The other reason for this development is the bad experience many of these pension funds had in private capital markets in the late 1980s and during the subsequent economic recession.