The days of Canadian institutional investors dismissing domestic opportunities for international ones may be over, according to a new research note.

In the note, Ian de Verteuil, managing director of equity, markets research and global markets at CIBC Capital Markets, predicted pension funds in Canada have ended a period of shifting their assets to international markets. “Our sense is the majority of the conscious asset mix shift away from public equities within big Canadian pension plans has already occurred.”

However, he made it clear that even though he foresees an end to the diminishing cycle for Canadian equities, it doesn’t mean there will be a resurgence in Canadian pension funds’ interest in the market.

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According to the note, Canadian pension funds primarily invested in private assets in 2022, including private equity, private credit, real estate and infrastructure. Over the past 15 years, he added, Canadian pension funds have shifted their asset exposure to private assets and away from domestic equities.

Bill Robson, president and chief executive officer of the C.D. Howe Institute, says the reason Canadian pension funds have looked outside the country for investment opportunities is related to a lack of appealing options. He said a depressed view of the Canadian markets isn’t exclusive to institutional investors.

“A lot of the assets that are attractive, particularly for the pension funds to hold, just aren’t easily available in Canada.”

According to de Verteuil, it’s normal to expect institutional investors to pursue diversification through technology or health-care opportunities in the U.S., but he argued a gradual shift away from Canada has brought some pain for domestic markets.

Robson says the Canadian markets would greatly benefit from pension funds looking to invest, but he isn’t expecting a significant change anytime soon. “If I thought there was going to be a major change in the amount of investable assets in Canada over the next little while, I’d be more enthusiastic about this.”

Instead, Robson predicts institutional investors will continue their icy approach to Canadian equities.

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