Over 40 percent of the 1998 supply to the Bissett pools, estimated at around $700 million in total value, are derived from pension funds, such as Alberta Treasury's IMD and OMERS. Mutual funds provide the balance of capitalization.Endnote 101
One of the few independent pools specially mandated to invest in low-capitalization public equity from the perspective of finding neglected value is Saxon Small Cap, of the family of Saxon Mutual Funds, and managed by Howson Tattersall Investment Counsel. Indeed, the latter was the first to found a mutual fund of this variety in 1985. At this early point, Howson Tattersall pioneered many of the small-cap stock-picking and management techniques meaningful to a value approach (discussed above in relation to BCE-BIMCOR and OMERS). At present, Saxon Small Cap targets under-priced stock issues of especially modest size - $200 million or less - on the TSE and ME.
About 50 percent of the supply to the Saxon Small Cap pool is derived from the assets of four pension funds, including Air Canada Pension Trust Fund and Petro-Canada Pension Fund.Endnote 102
Considering that little more than one-fifth of Canadian public securities trading takes place off-site of the TSE, it is difficult to speak at length about a community or regional context for related pension investment trends, let alone on-going asset exposure to small-caps. Some market analysts and practitioners also argue that the function of inter-listing diminishes the meaning of such context. Of course, discussion is also constrained by the absence of national aggregate statistics on the topic.
Even if data were plentiful, what would be a reasonable framework for analysis? This question was raised in a 1997 study published by the University of Wisconsin-Milwaukee Center for Economic Development (UWMCED) that addressed, among other things, pension asset allocations to state-based, low- capitalization public equity. UWMCED reported that while the small/mid-cap stock investing of local private and public sector plans was below the national average, it was not clear this amounted to under-investment of disadvantage to the state economy. In the end, an ETI program was proposed (see What's an ETI?) that could include a small-cap index pool for developing Wisconsin enterprises.Endnote 103
Given the importance of local public securities exchange activity to the economies of Alberta, British Columbia, Manitoba and Quebec - and, particularly, new and developing SMEs in these economies - there is probably something to be said for pension participation in small-caps at this level. This is certainly the view of the Caisse de dépôt, having given priority to re-inforcing the viability of Montreal as a Canadian and international financial centre. A substantial contribution to this aim is the Caisse's preferential location of securities transactions at the ME. For instance, in 1997, $7.7 billion of the money manager's volume of stock trading - of 67 percent of the total - was executed on that exchange (or over 8 percent of the total ME trading). Of course, small-cap stock issues are a component of this investing.
The Caisse de dépôt also provides support to the development of financial infrastructure, expertise and human resources in Montreal and elsewhere in Quebec. One goal of the subsidiary Services financiers CDPQ is to foster a larger and more viable provincial mutual fund sector that manages $15 billion within the next five years, by investing in firms with stakes in such funds. The Caisse also contributes to training and hiring programs relevant to the available pool of investment brokers, dealers and specialty agents.Endnote 104
It was mentioned above that an array of specialty small-cap managers and pools that, to different degrees, depend on pension asset syndication operate within proximity of public securities exchanges located outside of Ontario. This fact is probably also of consequence here. Of course, the mutual funds of Bissett and Associates, capitalized in part by pension funds that include the Alberta Treasury's IMD, and active in the ASE universe of small-cap listings, is one such example. Bissett's locale also enables close working relationships with inter-listed Canadian business residing in Alberta and other western provinces expected to show significant economic development and diversification over time.