If one revisits Figure 6, it is possible to plot, at least very generally, the parameters of Canadian pension investment in most private and public capital markets of consequence to financing key economic changes taking place in the country today. Plentiful data indicate limited pension participation in venture investing, most of which is undertaken by a few very large public sector funds or their money management institutions. Less plentiful data nonetheless points to a more considerable presence in the middle market, though this is also mainly the work of large public sector funds. Pension participation in small-cap public equity is more extensive still and involves private and public sector funds of all sizes, though data cannot give this exact confirmation as yet.
As discussed in preceding sections, pension participation in these capital markets suggests a contribution to new company formations, SME growth and later-stage business development that is job-creating or job- protecting. A more traditional role for pension funds in real estate markets can also be relevant to productive, job-creating investment in the economy. Here, participation is quite extensive, on-going and broadly- based among variously-sized private sector and public sector funds, but has been slipping from levels reached in years past.
A common theme for all of these capital markets, also previously discussed, is real or potential increases, by total dollars or as a percentage of total assets, in recent pension participation in them. All available evidence indicates, however, that there are impediments - some manageable, others seemingly intractable - that impose limits on prudent and reasonable levels of pension asset allocations or the sustainability of allocations once made. Rooted in relative inefficiencies specific to each market, these are most daunting for such private capital markets as venture investing and middle market investing.
Pension barriers to financing the new economy investment that is a critical by-product of these markets are not currently well known or fully comprehended. Over the course of its research, the CLMPC attempted to compile a list of those observed by pension managers, market analysts and practitioners.
Some of these were drawn from recent studies in Canada and the United States. In particular, the writings of Mary Macdonald have shed light on transactional hurdles that are structurally endemic to the institutional venture capital market, among other factors.Endnote 134 Professor Allan Riding (Carleton University) has written similarly about other private capital markets.Endnote 135 Other sources include surveys of American pension funds and published and unpublished analyses in both countries about barriers that are market-specific.Endnote 136 In CLMPC interviews over 1997-98, senior Canadian pension fiduciaries also provided very valuable anecdotal evidence linked to their own experiences.
In the end, the CLMPC identified fourteen barriers of special relevance to Canadian pension funds that certainly resonated with individual trustees and managers with whom they were discussed. These touch on all aspects of the pension process for allocating and managing assets, including governance, investment policies and styles, the law's prudential framework, capital market structures and incentive systems.
It is safe to say that most of these barriers have, as their immediate point of reference, markets for venture and non-venture private equity. It must also be said, however, that they apply in equal measure to other forms of private debt and quasi-equity placements, such as term lending and mezzanine financing. Because of its foundation in private capital markets, relevance can also be established for many aspects of investing in real estate and infrastructure.