Alternative assets can maintain institutional investors’ liquidity needs if they generate enough income, but this method is getting expensive, according to Janet Rabovsky (pictured centre), chair of the investment committee at the Teachers’ Pension Plan Corp. of Newfoundland and Labrador.
During a panel session at the Canadian Investment Review’s 2025 Alternative Investment Conference, she said
Private assets can challenge the liquidity preferences of investment teams due to the long life of the value-add strategy, she said, but if the asset generates significant income, it can also offset illiquidity concerns. “The problem is that everybody plowed into those and they’re expensive. You have a trade-off right now.”
Also speaking on the panel, Yannick Menard (pictured right), managing director of pension investments at BMO Financial Group’s pension plan, said alternative assets, even with open-ended funds, can threaten a pension fund’s liquidity levels, demanding a closer look to the asset mix.
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Menard is also wary of the timing to liquidate an alternative asset, which — unlike public equities and fixed income that can be rebalanced overnight — takes at least a quarter for the investor to see the change reflected. “We’re very selective when we’re looking at open-ended funds, just to see what the mix of clientele is, how much is private, high-net-worth clients versus how much are institutional clients”
At $7.5 billion in size, the BMO plan faces an about $300 million — or slightly more than four per cent — net cash outflows per year. With a 130 per cent funded status, the plan has enacted an ongoing contribution holiday that could last over the next 10 and 15 years, he said. The defined benefit plan was closed to new entrants on Jan. 1, 2023.
The closure has resulted in a gradual, year over year increase in the plan’s liquidity needs, added Menard. “Because as active members retire, they tend to earn more than your older pensioners that are passing away. Benefit payments need to keep on increasing year over year.”
As a publicly supported foundation, the Vancouver Foundation is extremely conservative in managing liquidity, said Eugene Lee (pictured left), its vice-president of investments, noting it has additional liquidity than what’s currently needed. Its alternative asset allocation represents around 30 per cent with assets in infrastructure, private credit and real estate.
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A five per cent quarterly mandate to distribute to underlying nonprofits within its purview has also pushed the team to look for open funds in which it can collect income that helps raise the required liquidity for its operations, said Lee.
By overseeing a very mature plan with a 125 per cent funded status, Rabovsky’s team started selling equities and fixed income to introduce private credit, private equity, infrastructure and real estate to introduce current income. “We were just selling assets primarily overweight in equities to fund our net contributions. But we were really thinking a lot about the alternatives that we were in and whether they were income producing or not.”
However, the ongoing demand from an ageing pensioner population is pushing the pension fund to reexamine its private asset exposure, she added. “At some point, we’re going to have to make the decision to start reducing our private equity [allocation] . . . and start focusing on a lesser amount of private assets but those that are income producing.”
Read more coverage of the 2025 Alternative Investment Conference.