As private markets expand, Canadian asset owners grapple with data, liquidity and talent concerns, says Jeff Alexander
Canadian asset owners are ramping up their exposure to private markets, drawn by the potential for outsized returns and better long-term alignment with their liabilities, recent findings from Northern Trust’s Asset Owners in Focus study has found.
According to Northern Trust’s study, 87 per cent of Canadian asset owners that invest in private markets have an average private market allocation of 13 per cent.
But as allocations grow, so do the operational and structural risks. And for many, as Jeff Alexander highlights, the confidence to navigate them isn't quite there yet. Despite strong historical performance and low volatility, private credit - one of the fastest-growing private market segments - remains underutilized.
“People are cautious, right? There’s complexities. There’s liquidity concerns,” said Alexander, CEO of Northern Trust Canada. “A robust risk framework is what needs to be in place to really unlock the opportunity. Asset managers need to really educate themselves and then put in those frameworks around risk compliance and figure out what it looks like, respectively. This area will continue to grow and it's quite frankly a little bit unique in some ways.”
When asked what makes private markets unique, Alexander acknowledged that the operational side of private markets is becoming increasingly complex for Canadian asset owners. From data and reporting challenges to managing capital calls and timely valuations, institutions are facing a growing list of demands.
To navigate these obstacles, many are turning to external partnerships. Alexander sees this as a necessary shift.
“You need to have the scale, the talent and the technology and not everyone can or wants to build that,” noted Alexander. “You need to partner with people who can.”
Additional findings from Northern Trust’s survey found more institutions are assessing what can realistically be done in-house and what needs to be outsourced, with 52 per cent of Canadian asset owners currently engaging a service provider to support analytics related to private market assets.
Still, according to Alexander, asset owners are increasingly exposing themselves to private markets because they’re under pressure to deliver stronger returns. As such, the long-term nature of private investments aligns well with the objectives of pension funds and other institutional investors.
“There’s a fit from both a risk perspective and a returns perspective,” added Alexander, noting that the time horizons of these investments suit institutions focused on long-term obligations, like paying out future retiree benefits. But to meet those commitments, Alexander emphasized that asset owners will need to “get creative” as they continuously explore their options.
Alexander acknowledged that the growing demand for skilled professionals in private markets has created intense competition for talent. This shortage is one of the main reasons hybrid operating models are gaining traction among asset owners.
By combining strong internal teams with specialized external partners, institutional investors can build the necessary infrastructure to focus on strategic decision-making while outsourcing more routine or technical tasks. Still, he underscored that there’s only so much talent available in the market, and while some organizations have managed to find the right expertise, it remains an ongoing challenge with an uncertain outlook.
Alexander believes there’s not one single solution when it comes to dividing responsibilities in a hybrid private markets model as the right balance depends heavily on factors like asset size and internal capabilities. Some institutions have the resources to manage more in-house, while others lean more heavily on outsourcing.
He suggests asset owners need to take a clear-eyed look at their internal resources - including talent, knowledge, and infrastructure - before deciding which responsibilities to retain and which to delegate.
Moving forward, Alexander sees the evolution of private markets as an ongoing process that will demand greater collaboration across the industry. With continued change expected, both asset owners and service providers will need to stay ahead of the curve.
“This will be an area where things will continue to change and evolve and that means we need to stay ahead. For asset owners, they need trusted partners to help them with the operations component and freeing them up to really think about their strategies and their innovation and looking to see what's next.”
It’s also these asset owners who will play a central role in shaping the direction of private markets, Alexander added, though uptake may vary by segment as areas like private credit sees slower momentum for the time being. Still, he expects adoption to accelerate as confidence builds, reinforcing his view that private markets will remain a key growth area for the foreseeable future.
“Success is ultimately going to hinge on technology, talent and trusted partnerships. I think that is the key,” said Alexander. “This is a new era of private market expansion. Make no mistake. It's going to continue to grow."
