The CLMPC-PIAC survey

In early 1998, CLMPC received a proposal from PIAC to convert the list of barriers to a questionnaire for an opinion survey of its membership. PIAC believed this effort would assist its own inquiry into those questions members might confront in any fiduciary decision to participate in the SME financing of private capital markets. Upon agreement of this proposal, the CLMPC and PIAC proceeded to jointly draft the questionnaire. It was further agreed that survey data, once obtained, compiled and analyzed by the CLMPC, should be presented to a PIAC conference and workshop (April 29 to May 1, 1998, Victoria, British Columbia) as delegate feedback might add to a final set of insights.^{Endnote 137}

At the time of the survey, PIAC represented 127 pension organizations that collectively manage close to 350 pension funds and approximately $400 billion in assets.

The design of the CLMPC-PIAC survey was a simple one. In general, PIAC members were asked to weigh the importance of the previously identified fourteen barriers.

More precisely, these were thirteen-plus-one barriers, since the last deals with small and medium-sized pension funds only. It was asked of all PIAC members as some large funds were once small and the experience may have yielded some lessons worth sharing. What the survey sought to discover in this regard was the relative importance of a pension fund's "critical mass" and its related capability to diversify assets towards alternative/non- traditional investment activity. $1 billion in total assets is often described as the threshold, in the sense that most pension funds below this level may not have sufficient resources. Unless otherwise stated, small and medium- sized funds are here defined as having total assets close to $1 billion or below. Large funds tend to refer to those possessing the greatest capability for diversification based on total assets of $5 billion and above.^{Endnote 138}

Along with their current asset size, respondents were requested to indicate their style of asset management - external, internal or a mix of the two - as these data might provide still more intelligence. Finally, respondents were invited to comment on their ratings and suggest ways by which to overcome barriers, if possible.

PIAC sent out the survey in March, 1998. By April 1^st, 53 percent of PIAC members had answered, reflecting a fairly wide representation of funds according to size. These data are found in Figure 14.

CLMPC-PIAC survey results

The findings of the CLMPC-PIAC survey are valuable as they help to illuminate the potential limits and opportunities of a role for pension funds in a new and changing Canadian economy. Many PIAC respondent ratings were grounded in experience in such markets as private equity (both venture and non-venture), mezzanine financing, term lending and real estate, while others probably reflect initial consideration of what are still unfamiliar alternative/non traditional asset classes.

Perhaps the first finding of significance (see Figure 14) is that nine of the fourteen barriers received an overall rating of important or very important. Six, all pertaining to impediments implied in the complex and prohibitive structures of private capital markets, were so rated by very wide margins - from two-thirds to three-quarters of total respondents. The apparent general suggestion is that, experienced in them or not, pension fiduciaries believe such markets present clear and direct challenges to entry or sustained involvement by their funds.

The following is an overview of the barriers in order of PIAC member ratings and commentary. This is accompanied by some preliminary discussion of alternative means and structures intended to strategically overcome barriers. These mostly derive from CLMPC research into assorted private capital markets in North American and Australasia - and, in particular, highly-evolved private equity investing in the United States - usually as barrier-specific responses developed over time by practitioners on the demand or supply sides and frequently with the support of public policy. In many cases, organizational and technical innovations have been pension-led as the capital commitments of funds in these jurisdictions expanded and gave fiduciaries more influence in market development.