In some instances, the relationships established through global co-investment, partnerships and networks act to support the outward expansion of Canadian business. While large corporations provide much of the impetus behind cross-border economic activity, growing, export-oriented SMEs are also increasingly important contributors - in 1997, the Organization for Economic Development and Co-operation estimated that one- quarter to one-third of world exports in manufactured goods originated with the latter.^{Endnote 74} Pension funds with stakes in both Canadian and global private equity investing are in an especially good position to assist small entrepreneurs pursuing internationalization. For some, such as the Caisse de dépôt, this is an explicit strategy on behalf of new and developing Quebec SMEs (see Caisse de dépôt: Ways and Means).

This said, most pension asset allocations to privately-placed debt and equity are currently extended to medium-sized and larger enterprises in national and provincial middle markets. This is evident in both the externally-managed pools and internally-managed programs outlined above, regardless of the event transactions preferred in each case. Moreover, CLMPC interviews with limited partnership managers found that pension funds, especially those in the public sector, often make distribution of middle market investment opportunities to their resident province or region a contingency of participation. This is currently true for both Penfund and McKenna Gale Capital.

Further illustrations exist in sub-markets in British Columbia, Quebec and New Brunswick. On Canada's west coast, a 1993 program called BC Focus, intended to leverage matching levels of government and private sector capital resources for SME financing, encouraged a contribution from pension funds. An original goal was a more vital and better-supplied provincial merchant banking sector. Among the institutions supported by public sector pension plans associated with British Columbia's OCIO under this initiative is the British Columbia Mercantile Corporation. This merchant bank, active since 1989, invests directly or arranges for co- investments in middle market projects, including acquisitions, divestitures, expansions, management buyouts, restructurings and turnarounds.^{Endnote 75}

In Quebec, the Caisse de dépôt's Capital d'Amerique CDPQ concentrates almost exclusively on deals involving medium-sized and larger firms situated in traditional manufacturing, energy, resource extraction and service industries. At the end of 1997, the subsidiary's portfolio comprised 183 investments at a total value of $2.6 billion.^{Endnote 76} A similar disbursement of private debt and equity has been undertaken by New Brunswick public sector pension funds, under the auspices of the newly-constituted New Brunswick IMC, as briefly described in Pension Assets at the Grassroots.

In the United States, several economically-targeted investment (ETI) programs, or ETI-like programs, exist with middle sub-market mandates, often with pension sponsorship. One example is the Private Capital Fund (PCF) of the Union Labor Life Insurance Company (ULLICO), established in 1995 to extend loans, equity or mezzanine financing within a range of $2-5 million and in mature companies seeking to grow internally or through acquisitions. If feasible, investment projects of ULLICO's $100 million pool are also chosen where there is a clear prospect for benefiting unionized employers, the jobs of union members and the communities in which they reside. The assets of Taft-Hartley (jointly-trusted, multi-employer) pension funds supply this mandate.^{Endnote 77}

Some concluding thoughts

In Canada's financial system, middle market investing occupies increasingly crucial ground between SME term lending and venture financing, on one side, and public securities exchanges, on the other. Though its parameters are a little fuzzy, the market's primary clients, and the economic events that drive investment in them, are recognizable and of no small importance. Private firms seeking to develop without diluting ownership by going public. Publicly-listed firms needing to revert to private placement. Family firms aiming to transfer ownership to a next generation. Firms in traditional industries that require restructuring or rescue. Mergers and acquisitions among firms adjusting to a global economy. A great many are medium-sized. These are the targets of middle market investing, the output and job-related outcomes of which are both economy-wide and specific to communities and regions.