Canadian pension funds hit by private equity slump

In today’s newsletter:

• Canadian pension funds count cost of private equity slump

• Rich investors seek to pull billions from private credit funds

• Five-minute crypto bets surge in popularity

Canadian pension funds count cost of private equity slump

Canada’s pension funds are some of the most experienced private equity investors. Even they could not avoid a difficult period for this asset class.

A number of Canada’s biggest pension funds lost money on their private equity holdings last year as a downturn for the buyout sector hit their returns, write Mary McDougall and Alexandra Heal.

Ontario Teachers’ Pension Plan, which manages C$279bn ($206bn) of assets, and the C$145bn Ontario Municipal Employees Retirement System reported returns of minus 5.3 per cent and minus 2.5 per cent respectively for their private equity portfolios in 2025. For OTPP, it was the worst performance for this asset class since 2009 and for Omers since 2020. 

La Caisse, Quebec’s C$517bn state pension fund, also reported weak private equity results. The group said its PE portfolio returned 2.3 per cent last year, well below the 12.6 per cent gain in its benchmark index, half of which is made up of listed stocks.

The Healthcare of Ontario Pension Plan, which published results this week alongside OTTP, reported private equity returns of 3.6 per cent in 2025. Its broader private markets portfolio returned 2.1 per cent, compared with 11.7 per cent for its listed holdings.

“Those are pretty dismal numbers, in private equity returns should be at 15 per cent minimum,” said one Canadian pension investor. 

Rising interest rates since 2022 have weighed on private equity investment, with higher borrowing costs hitting dealmaking, returns and exit options. Some private equity funds have suffered more than others.

Canada’s pension system is a major private equity investor with more than 20 per cent of public sector pension money allocated to the asset class, according to 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”.  

Rich investors seek to pull billions from private credit funds

Wealthy individuals have sought to pull more than $10bn from some of the largest private credit funds in the first quarter, prompting a litany of investment managers to limit withdrawals and threatening to stall one of Wall Street’s most important growth engines, write Antoine Gara and Eric Platt.

Debt funds managed by powerhouse firms including Blackstone, BlackRock, Cliffwater, Morgan Stanley and Monroe Capital have so far agreed to honour about 70 per cent of the $10.1bn of redemption requests they have faced, according to FT calculations.

That number is expected to rise over the next two weeks, as funds managed by Ares Management, Apollo Global, Blue Owl, Oaktree and Goldman Sachs tally up how many of their investors are heading for the exits.

The funds that have already reported withdrawals manage investment portfolios worth roughly $166bn, a fraction of the roughly $1.5tn invested across direct lending funds. But these vehicles have been among the fastest growing corners of the private investment space, providing a building block for money managers as they set their sights on cracking the $9tn US retirement market.

The redemptions have reversed a five-year stretch in which nearly $200bn flowed into the debt funds of large private market groups, helping to spur a boom in their growth and profitability.

“The air has come out of the balloon and the whole industry has been under a lot of pressure,” says CT Fitzpatrick, chief executive of Vulcan Value Partners, a longtime shareholder in publicly traded private capital groups.

Some on Wall Street, like former Pimco co-CEO Mohamed El-Erian, have said the ructions are reminiscent of the early days of the 2008 financial crisis. But many private capital executives told the FT they were perplexed by what they felt was an indiscriminate sell-off that didn’t reflect the performance of their portfolios.

Firms like Blackstone and Blue Owl do not hold loans on their own books that would expose them to large losses, and they carry minimal corporate debt. But firms’ share prices have proven highly volatile in recent years as investor perceptions of their future growth have swung wildly amid geopolitical and market upheaval.

“We know how the masses behave,” Jack Shannon, an analyst at Morningstar, said. “It’s fickle, they will chase performance. They will leave the moment they sense danger.”

Five-minute crypto bets surge in popularity

Just when many professional traders have moved to reduce the risk on their books since the latest Iranian crisis began, some retail investors in the US have found a new way to speculate on increasingly popular prediction markets.

Ultra-short-term cryptocurrency bets have surged in popularity with amateur traders on prediction markets, creating “even more mania” in digital tokens and new arbitrage opportunities for high-speed trading firms to exploit, write Sam Learner, George Steer and Josh Gabert-Doyon.

Contracts on whether the price of bitcoin and other cryptocurrencies will be higher or lower in five or 15 minutes are attracting roughly $70mn in daily trading volume across Polymarket and Kalshi, data from the two biggest prediction platforms shows.

Both platforms began offering 15-minute “up-down” bets on bitcoin, ethereum, solana and XRP late last year, and Polymarket has since added five-minute bets on the same five tokens.

These contracts now represent more than half of all crypto trading on both markets. Their growth has also created new inefficiencies that sophisticated traders have jumped on.

“Prediction market platforms have managed to take a speculative asset and inject even more mania into its trading,” said Amanda Fischer, policy director at investor advocacy group Better Markets and former chief of staff at the Securities and Exchange Commission, the US markets regulator.

Polymarket and Kalshi have taken the US by storm since their emergence ahead of the 2024 US presidential election, attracting tens of billions of dollars in bets every month on binary outcomes of a huge range of events including football matches, economic developments and the timing of US military attacks on countries around the world.

Retail investors are piling into increasingly short-dated crypto contracts in search of quick wins, even as the price of bitcoin has tumbled more than 40 per cent from its peak last October and despite Polymarket’s decision to charge fees on such contracts from January.

Steffen Meister, the chair of Partners Group, told the FT that default rates in private credit could double from the 2.6 per cent average of the last decade.

This comes at a time of increasing investor unease about private credit funds. Both Morgan Stanley and one of the fastest-growing private credit lenders Cliffwater have announced restrictions on fund withdrawals.

It won’t come as a surprise that Goldman Sachs has pitched its hedge fund clients on strategies to bet against corporate loans.

A marketing blitz is on in Europe with retail investors, selling private assets — equity, credit and infrastructure — to clients previously accustomed to investing only in publicly traded stocks and bonds. There is a risk of a mis-selling scandal.

Billionaire hedge fund manager Bill Ackman has filed for a US initial public offering for his closed-end Pershing Square USA vehicle on the New York Stock Exchange, hoping to build a “modern-day Berkshire Hathaway”.

And finally

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Until November 15