A desire to diversify a heavy public equities portfolio led Montreal’s municipal pension plan sponsor to look more closely at alternative assets.
Before the global financial crisis, more than 60 per cent of the City of Montreal’s portfolio was in public equities, said Errico Cocchi, its head of pension investments, during a session at the Canadian Investment Review’s 2025 Alternative Investment Conference. “We had a very volatile portfolio, which before the GFC was doing quite well, but we got hit very hard. This is when we started to amp up the diversification into alternatives because of the level of volatility.”
The pension plan sponsor is aiming to use private equity as a complement to its existing equity stake, given the importance of diversifying sources of return, he said. And in the next five years, it wants to increase its alternatives bucket to more than 30 per cent.
Read: City of Montreal navigating volatility driven by global equities
The City started investing in alternatives during the 1990s when it had direct investments in real estate. However, market conditions made it challenging, said Cocchi, pushing the organization to move towards hedge funds as a different alternative asset to explore.
The push to diversify the hedge fund strategy brought more private assets to the table to introduce some cashflow, he said, noting that led the team to look at infrastructure in 2006 followed by private credit assets a few years later.
While Cocchi also said he considers fixed income to be a safe and traditional segment of the City’s portfolio (with more than half in Canadian bonds), a portion does offer some exposure to riskier assets like foreign bonds, credit and unconstrained strategies, as well as mortgages.
The investment organization also introduced private credit in 2010 as a way to diversify, he added. “Initially, the thought was to diversify away from Canadian corporate bonds in a sense, because we know the Canadian market is a small market.”
Read: SHEPP diversifying portfolio with alternatives, less dependence on equities
Cocchi said he isn’t a fan of debating whether private equities are part of an alternative portfolio. Instead, he considers the conversation to be based on semantics that aren’t based on investment metrics. “It’s a question of how do you view these things? What’s the risk level? What are you investing in?”
The City manages six different pension plans across more than 46,000 municipal employees with a total $11 billion in assets under management. The plans are mature, he said, with more retirees and beneficiaries than active members. This structure means the organization has around $300 million of negative cashflow per year.
“Obviously, this is something we have to keep in mind when we invest or when we build our investment strategy.”
Read more coverage of the 2025 Alternative Investment Conference.