Retirement plans juggle weak PE results with rising stress in private credit
Canada’s biggest pension plans are finding that private markets can disappoint just when public equities deliver.
According to the Financial Times, Ontario Teachers’ Pension Plan (OTPP), which manages $279bn of assets, and the $145bn Ontario Municipal Employees Retirement System (OMERS) reported private equity returns of minus 5.3 percent and minus 2.5 percent respectively in 2025, their worst results in this asset class since 2008 for OTPP and 2020 for OMERS.
La Caisse, Quebec’s $517bn state pension fund, posted a 2.3 percent return from private equity, far below the 12.6 percent gain of its benchmark index, half of which consists of listed stocks.
The Healthcare of Ontario Pension Plan, which published results alongside OTPP, reported private equity returns of 3.6 percent in 2025 and a 2.1 percent return from its broader private markets portfolio, compared with 11.7 percent for its listed holdings.
One Canadian pension investor told the paper, “Those are pretty dismal numbers, in private equity returns should be at 15 percent minimum.”
Rising interest rates since 2022 have weighed on private equity investment, with higher borrowing costs affecting dealmaking, returns and exit options, according to the Financial Times.
Canada’s pension system is a major private equity investor, with more than 20 percent of public sector pension money allocated to the asset class, the paper reported, citing think-tank New Financial.
Dale Burgess, executive managing director of equities at OTPP, said private equity investors had been “navigating increased cost of capital, more constrained exit markets and greater operating complexity, creating a drag on returns”.
Financial Times reported that OTPP’s private equity portfolio fell in value from $60.4bn to $50.8bn last year, partly because of full or partial sales of its investments in insurance brokerage BroadStreet Partners, Indian hospital chain Sahyadri Hospitals and Canadian retirement home provider Amica Senior Lifestyles.
To address these challenges, OTPP said it had made a “strategic shift” towards investing in areas where it believes it has a competitive edge, particularly in the financial, services and technology sectors, according to the same report.
OMERS said its $25.6bn private equity portfolio recorded a net investment loss of $700m last year, with difficulties in its industrial holdings and “weak performance across our earlier-stage growth and venture portfolios.”
The fund has recently announced sales in its private equity portfolio, including California-based care manager Paradigm and Toronto-based home care business CBI Health, the paper noted.
La Caisse blamed “slow earnings growth for portfolio companies and lower multiples in the technology and healthcare sectors” for its disappointing private equity outcomes, according to the same article.
Despite weaker private equity and private markets results, overall performance benefited from strong listed markets.
Financial Times reported that OTPP’s total portfolio delivered a net return of 6.7 percent, OMERS 6 percent and La Caisse 9.3 percent last year.
At the same time, wealthy investors have been pulling money from private credit.
According to the Financial Times, high-net-worth individuals sought to redeem more than US$10.1bn from some of the largest private credit funds in the first quarter, prompting firms such as Blackstone, BlackRock, Cliffwater, Morgan Stanley and Monroe Capital to limit withdrawals and so far agree to honour about 70 percent of redemption requests.
The paper said these funds manage around US$166bn, a small share of the roughly US$1.5tn in direct lending, but noted that they are among the fastest-growing parts of private markets and a building block for managers aiming at the US$9tn US retirement market.
The redemptions have reversed nearly US$200bn of inflows into large private debt funds over the past five years, helping to fuel a boom in their growth and profitability.
CT Fitzpatrick, chief executive of Vulcan Value Partners, said “the air has come out of the balloon and the whole industry has been under a lot of pressure.”
Former Pimco co-chief executive Mohamed El-Erian has said the turmoil is reminiscent of the early days of the 2008 financial crisis, the paper reported.
Morningstar analyst Jack Shannon told Financial Times, “We know how the masses behave. It’s fickle, they will chase performance. They will leave the moment they sense danger.”
The New York Times noted that private credit “isn’t the only pain point” and emphasised that, in a company’s capital structure, private equity typically takes losses before private credit lenders.
The paper cited the example of Vista Equity Partners, whose roughly US$4bn equity stake in Pluralsight was essentially reduced to zero in 2024 when it handed the education software company to its private credit lenders.
According to the New York Times, Vista, Thoma Bravo and similar firms spent the past decade using heavy leverage to buy enterprise software companies.
Higher interest rates, weaker software valuations, a closed exit window and investor concern that artificial intelligence tools like Anthropic’s Claude Code may disrupt the sector have now put that approach under strain.
The New York Times reported that private credit lenders benefit from seniority and loan covenants, and said Thoma Bravo has reportedly taken steps to limit creditor power plays at its investments.
Robert Smith, Vista’s founder, told investors that “we feel this volatility is being driven primarily by sentiment and uncertainty, not fundamental performance” and said most of its portfolio companies were not being “battered” by AI-powered competitors.
The New York Times also quoted Gustavo Schwed, a finance professor at New York University’s Stern School of Business, as saying that debt investors can have less tolerance for losses than equity holders because debt can trade at a discount while equity is not immediately impaired.
The Times added that JPMorgan Chase has marked down the value of some loans in private credit borrowers’ portfolios, and that private equity firms, private credit funds and portfolio companies have incentives to delay write-downs or loan renegotiations while they hope rates fall and exit markets reopen.
