This is no minor unfolding-of-events. In a brief time, Canadian pension funds have established a clearly interactive relationship with publicly-listed and traded corporations and periodic offerings that can yield the sort of productive investment that creates economic growth and employment. Funds may now be able to contribute all the more meaningfully to the supply of adequate and affordable public equity capital that is vital to business investment in Canada. This is also one of the reasons why pension funds are under pressure from different directions to clarify their dispositions as significant minority shareholders in blue chip enterprises and on a wide range of corporate governance issues.Endnote 34
At the same time, what is troubling in the current Canadian economic context is the investment financing barriers that are encountered by new and developing SMEs, emerging knowledge-based and technology- intensive firms and traditional firms attempting a transition in an altered competitive environment. Is there a "disconnect" between demand from these sources and supply of pension assets, perhaps illustrated in reduced exposure to alternative/non-traditional asset classes and the private capital markets in which they are situated? Are pension funds fully represented across the national private-public market continuum for financing business with new economy imperatives? If not, why not?
The contemporary Canadian employer-sponsored pension fund exhibits integral attributes that suggest a ready fit with certain roles as active and leading financial agents in a changing economy. As previously discussed, the fiduciary effort to appropriately balance assets in portfolios with benefit liabilities down the road means that these funds are characteristically patient in their approach to investing. Along with a long-term mandate, the fiduciary requirement to diversify asset mixes may also eventually invite still broader capital market participation, especially as assets persist in accumulating.
These and other qualities of pension funds towards the end of the 1990s explain why some are charting a new and substantially different investment course.
The following sections — Pension Funds and Venture Investing, Pension Funds and Middle Market Investing, Pension Funds and Public Equity Investing and Pension Funds and Real Estate Investing — look at four capital markets that contribute quite significantly, if in very different ways, to broad and specific developments in Canada's economy and employment base. An additional criterion for selecting these capital markets is that, to a greater or lesser extent, pension funds participate in all four, at home and abroad.
The first three form what may be characterized as a private-public market continuum for capital supply to new and developing SMEs and larger firms in both traditional and non-traditional Canadian industries. As an individual SME grows, its relative access to adequate and affordable external financing will vary according to its own intrinsic structural qualities, especially the critical qualities of size, age and establishment in the commercial world (see Figure 6).
This financing continuum has seen increasing use in recent years, especially as growth-oriented SMEs (or so- called "gazelles" ) in knowledge-based and technology-intensive industries have come to the fore. A good example is Vancouver-based Ballard Power Systems, the developer of a non-polluting fuel cell engine technology, that began as a 1989 start-up financing in the venture capital market and, following initial public offering in 1995, has since advanced to the top of public securities exchanges. Ballard's workforce has expanded commensurably. Other examples are alluded to in the pages to follow.