Canadian pension funds are adapting their investment strategies for a post-COVID-19 world by shifting their investments away from infrastructure to private equity, and by moving more of their asset management in-house, according to a new report from CIBC Mellon.

The report was based on a survey completed last year of 50 Canadian pension managers—half of which had more than C$1.2 billion ($950 million) in assets under management (AUM), with the other half having between C$600 million and $1.2 billion assets under management. According to the survey, the vast majority of the Canadian pension funds polled plan to alter the mix of their portfolios.

In particular, 86% of funds said they expect to reduce their exposure to infrastructure over the next year or two. This would reverse a trend in recent years of funds seeking out infrastructure assets, with falling interest rates forcing managers to broaden their search for returns. It also signals a departure from the pre-pandemic path of Canadian alternative asset managers, which had expected to maintain their allocation to infrastructure.

“This shift could indicate repositioning to achieve liquidity goals, portfolio rebalancing to capture gains, or even a strategic departure by Canadian plans relative to their global peers,” said the report. “However, while the defensive characteristics of infrastructure remain attractive—including the offer of stable, long-term yields—some have warned of the dangers of overexposure to illiquid assets.”

The funds coming out of infrastructure have to go somewhere, and the asset class most likely to see an increase in allocations as a result is private equity. The survey found that 90% of respondents say they intend to increase private equity allocations over the next 12 to 24 months, including 42% who said they expect to boost their exposures to real estate.

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