Canadian Pension Funds: Private Equity Lite or the Top Finance Job in Canada?

Canadian pension funds always seem to generate strong reactions.

Depending on the source, they’re either a lower-paying, more “boring” version of standard private equity careers or a top exit opportunity for bankers.

The confusion begins with the fact that these pension funds are huge, with many different teams operating in various areas and paying different amounts.

The biggest pension funds have expanded into direct private equity deals over time, but they also do credit, real estate, infrastructure, funds of funds, secondaries, and various types of asset management.

This article will focus on the “direct investing” side and what to expect in private equity roles since the previous articles on pension fund investment management and sovereign wealth funds have covered some of the others:

What Are “Canadian Pension Funds?” What Do They Do?

Canadian Pension Funds Definition: The Canadian pension funds, including the “Maple 8” biggest funds, are state-owned vehicles that invest mandatory employee retirement plan contributions to build up the plans’ assets and ensure there is sufficient funding to pay benefits to retirees in the future.

Canadian pension funds are a variant of sovereign wealth funds; unlike SWFs, they do not invest reserves from commodity wealth or trade surpluses but rather from the required pension contributions.

Also, their goals are a bit different. Pensions care less about wealth/income diversification and revenue stabilization, and more about funding retirees’ benefits in the future.

Traditionally, pension funds operated more like asset managers, using simple equities, fixed income, and mutual fund strategies.

Over time, they expanded their direct investing capabilities in areas like private equity, real estate, credit, infrastructure, and more.

But as with SWFs, there is no carried interest because the government owns pension funds and does not like to pay high fees for performance.

This limits the compensation ceiling, but also the hours and stress (well, sort of).

Other key points about the Canadian pension funds include:

• Role / Positioning: The pensions are Limited Partners (LPs) with the ability to act as General Partners (GPs); they get invited to many deals (co-investments, primary funds of funds, secondaries, joint ventures, etc.) because they are perceived as “non-threatening.” Also, they have lower returns targets and longer time frames, which lets them pursue a wider variety of deals.
• Advantages: The hours and culture are often better, you can move around and work in many different areas within the fund, and the compensation is quite good on a time/stress-adjusted basis many other buy-side roles.
• Disadvantages: There are few spots, recruiting is very competitive, it starts to get crowded after the Associate level, and the lack of carried interest limits compensation. The work is also less interesting if you don’t make direct investments, and there tend to be more bureaucracy and non-investing staff to deal with.
• Ideal For: If you’ve been in banking or PE but you’re burned out and want to work reduced hours in exchange for lower compensation, pensions are a good option. But you won’t get the huge tax savings you would from going to places like the Middle East or Singapore, and you’ll still have to survive the Canadian winters.

The Maple 8: Top Canadian Pension Funds

The biggest Canadian pension funds are known as the “Maple 8,” and you can find a list by AUM on Wikipedia.

However, AUM doesn’t tell the full story because some funds have more desirable work, deals, compensation, and advancement opportunities.

Also, a few pension funds are not officially in the “Maple 8” but are still highly regarded.

Here’s how some people would “rank” these firms, including two that are not part of this official group:

For clarity, the tiers in writing are as follows:

• Tier 1: Canada Pension Plan Investment Board (CPPIB), Ontario Municipal Employees Retirement System (OMERS), and Ontario Teachers’ Pension Plan (OTPP).
• Tier 2: British Columbia Investment Management Corporation (BCImc), Healthcare of Ontario Pension Plan (HOOPP), Public Sector Pension Investment Board (PSP), and Caisse de dépôt et placement du Québec (CDPQ).
• Tier 3: Alberta Investment Management Corporation (AIMCo), Investment Management Corporation of Ontario (IMCO), and OPSEU Pension Trust (OPTrust).

The explanations for some of these are simple: CPP is the largest pension with the strongest reputation, while OMERS is also large and has acted as a true GP in many deals.

The Tier 1 firms also tend to be strong in both infrastructure and real estate private equity, and are the best bets if you want to move internationally, such as via a transfer to the U.S.

Some of the Tier 2 and 3 firms are smaller and may make fewer direct investments, but could offer better hours and faster promotions.

Firms like CDPQ are lower on the list because they focus heavily on Quebec and have cultural and language differences that limit the candidate pool.

Outside of these, there are dozens of smaller pensions with AUM in the billions or tens of billions; they tend to act more like traditional asset managers.

On the Job at Canadian Pension Funds

Many of the differences highlighted in the sovereign wealth fund article also apply here: You tend to spend more time on “high-level” asset allocation questions, you might not go into quite as much detail on individual deals, and you’ll often build higher-level models.

Returns targets are often lower, and holding periods could be much longer.

For example, firms like CPP often aim to earn a rate of return based on a spread to consumer price inflation (CPI), such as 3 – 4%.

When your targeted rate of return is below 10%, it is very easy to overpay for assets.

A few other nuances include:

• Direct Deals and Private Equity: The biggest Canadian pensions expanded aggressively into PE and direct investments during the 2010s, but they seem to be pulling back now. They are shifting to more co-investment, secondaries, and JV-type deals, partially to take less risk while also reducing the fees paid to PE firms (some of these deal types offer reduced fees).
• Bureaucracy: I cannot prove this scientifically, but my impression is that there’s more red tape at the average pension than at the average SWF, presumably because their purposes differ (government funding for retirees vs. general wealth expansion).

For more about the daily work tasks, check out the SWF, pension fund investment management, and PE funds of funds articles.

Compensation, Carried Interest, and Shadow Carry

If you’re in a direct private equity role at one of the biggest pensions, you should expect upper-middle-market private equity pay, but with lower bonuses and no potential for true carried interest.

My summary would be:

• Analyst: $140K – $160K CAD
• Associate: $200K – $300K
• Senior Associate: $300K – $400K
• Vice President: $500K+
• Principal: $600K+
• Managing Director: $800K – $1.2M+
• C-Level Executive: Low millions

Note that these are all in Canadian dollars (CAD), so multiply by 70 – 80% to get the figures in USD.

CPP discloses the exact compensation of its C-level executives, so you can review all the figures in CAD, GBP, and HKD here:

These are impressive pay figures, but they’re in line with what Partners at traditional PE firms might earn. Actual MDs at pensions earn less than MDs/Partners in PE.

You should also assume that compensation is lower in non-direct investing roles, but I could not find the specific numerical differences.

Some sources claim that compensation is higher in offices outside of Canada, such as in London and Hong Kong, but I could not confirm this, either.

The lack of carried interest is a major downside, but there are a few offsets:

• “Shadow Carry” and Long-Term Incentive Plan (LTIP) Compensation: At the Senior Associate level and beyond, many pensions offer this type of compensation. “Shadow Carry” or “Phantom Carry” is a form of profit sharing that replicates the benefits of traditional carried interest without giving you equity ownership. These schemes amount to extra cash bonuses that get deferred or vested over several years and taxed as ordinary income (but they are much less significant than true carry).
• Defined-Benefit Pension Plans: By working at a pension, you also get a plan specific to that firm. If you reach a high compensation level and stay there for decades, this could amount to a very substantial income in retirement (though most funds now cap it).

The compensation ceiling is highest in direct private equity, followed by direct infrastructure, real estate, and credit.

After that, funds of funds and secondaries-type roles have lower potential, and traditional portfolio management is below that.

Long-Term Careers, Hours, and Promotions

The hours vary wildly based on your team.

If you’re in one of the more passive/LP-oriented groups, you might have something close to a standard 40-50-hour workweek with a regular schedule and no weekend work.

If you’re in a team that makes direct investments, the hours might be closer to the 50 – 60 range, with spikes above that when you’re working on live deals, especially in private equity (e.g., 70 – 80 during busy periods).

The hierarchy varies, with some firms progressing from Associate to Senior Associate to VP to Principal (with a few years in each role), while others move directly from Associate to Principal (which is just another term for “Senior Associate” in this context).

The time required to advance isn’t much different from standard IB or PE roles, but one difference is that the turnover is much lower.

Especially once you move above the Senior Associate level, few people want to leave because it’s tough to find this combination of compensation + hours anywhere else.

So, many people stall out and leave for other firms or industries when they realize their chances of promotion are low.

If you want to move up, you might have to switch locations (e.g., NYC or London) or move around to different firms.

How to Recruit and Win Canadian Pension Fund Offers

Traditionally, some of the Maple 8 pension funds have run rotational Analyst programs right out of undergrad, but there are very few openings, and some have also shut down these programs over time (e.g., OMERS).

So, as with most other exit opportunities, your best bet is to work in investment banking first, ideally at one of the Big 5 Canadian banks.

Recruiting tends to be very competitive because there aren’t many other good buy-side options in Canada.

Beyond the large pension funds, the other desirable options are Onex, Brookfield, Altas… and maybe a few dozen middle-market PE funds.

Corporate development roles exist but are in a different category, and hedge funds are scarce.

As a result, you’ll always be up against a lot of Big 5 bankers for a limited number of junior spots at the pension funds.

The biggest pension funds tend to have more structured processes, like on-cycle private equity recruiting in the U.S., while smaller funds use something closer to off-cycle PE recruiting.

Interviews and Case Studies

In interviews, expect the standard IB-style questions along with specific questions related to private equity, credit, real estate, infrastructure, or asset management, depending on the group.

The process typically begins with a phone or HireVue interview, moves to a case study or modeling test, and concludes with additional interviews by the senior staff.

If you already have full-time work experience, you should definitely expect a formal case study.

Yes, I have a few example tests given by pension funds, but I cannot share any of them here due to privacy reasons (there’s personally identifiable information, and we only share case studies that students have granted permission to share).

However, there’s also nothing different or unique about these case studies just because pensions gave them.

The LBO modeling test, 3-statement modeling test, open-ended private equity case study, and simple real estate models on this site are all good representations of what to expect.

Canadian Pension Fund Exit Opportunities

Exit opportunities from Canadian pensions depend on three main factors:

1. Firm Reputation: You’ll have more opportunities by working at one of the top funds by AUM because they’re better-known in other geographies and industries.
2. Group: It’s often easier to move around within specialized areas like infrastructure and real estate rather than generalist private equity.
3. LP vs. GP: Were you evaluating other funds and acting as more of a passive investor, or were you executing individual deals? If you were on the LP side, did you at least work on some co-investments?

Putting this together, you’ll have the broadest exit opportunities by working at a firm like CPP or OTPP in the direct PE team, but you may be able to move to slightly “better” firms by working in one of the specialized groups rather than generalist PE.

The main options are other private equity/credit firms, smaller pensions, asset management firms, endowments, and funds of funds, depending on your experience.

If your goal is to move to a private equity mega-fund, it will still be challenging even if you work at one of the top pensions.

Yes, it’s possible (search LinkedIn), but in most cases, you’d be better off working at one of the Big 5 Canadian banks in IB and recruiting from there or going to the U.S. first.

Within PE, you will usually have a better chance at the middle-market funds in Canada (though people do get into Brookfield, Onex, etc., as well).

And if nothing works out, pension funds tend to be good “feeders” into the top MBA programs, so that option is also available if you want to change careers.

Are Canadian Pension Funds the Top Exit Opportunity?

I would answer this one similarly to the “Are sovereign wealth funds worth it?” question.

Like SWFs, Canadian pension funds are great if you want to work on deals or investments while getting a somewhat better work/life balance, and you’re fine with lower pay.

If you can reach the top, the senior-level jobs at these funds are very, very cushy.

But there are a few added considerations:

1. Taxes, Cost of Living, and Savings – Canada is a high-tax country, and the cost of living in major cities is high (housing costs are borderline ridiculous), so you will not be able to save nearly as much as you would in the Middle East or Singapore.
2. Location – And you’ll be in Canada, which has some negatives (the winter) and some positives (a bigger country with more to do than the small city-states).
3. Optionality and Exit Opportunities – You also give yourself more options by working at a Canadian pension fund because the U.S. is right next door, it has the most high-paying finance jobs anywhere in the world, and Canadians can get U.S. work visas fairly easily.

So, returning to the question at the top: Canadian pension funds are both “private equity lite” and “the top finance job in Canada” (depending on your group).

You could certainly earn higher pay in other roles or find jobs with better work/life balance, but you won’t find much that offers the same combination as the pensions.