Staying diversified is the best way for Canadian pension funds to navigate the impact of US tariffs and the looming trade war that has just ratcheted up since US President Donald Trump announced tariffs on Canadian steel and aluminium exports to the US.

Policy might be reversed instantly; it’s difficult to know if tariffs will benefit the US at the expense of Canada or where the impact will be most keenly felt in the global economy, said Peter Lindley, president and chief executive of $26 billion OPTrust, which invests and administers an Ontario-based defined benefit plan with 114,000 members.

Lindley said that from an economic perspective, Canada’s manufacturing sector looks particularly vulnerable to tariffs. At least on the assumption that the Trump administration is using trade barriers to encourage onshore manufacturing and energy production. But he warned against inefficient tactical positioning in an environment where things can change quickly and the rationale for tariffs is unclear. It’s also possible that tariffs offer opportunities for Canadian corporates to think differently and diversify so they are less reliant on the US.

The right level of diversification

Ensuring the right level of diversification is central to strategy at OPTrust which has just reported its latest results of 9.6 per cent and a fully funded status for the 16th consecutive year. The portfolio is constructed to ensure a “goldilocks” level of risk that both meets the fund’s objectives (investment returns account for more than 70 per cent of the benefits paid to members) and ensures the right level of diversification so that no one element of the portfolio dominates.

Strategy is shaped around three key elements Lindley likens to the legs of a stool comprising a core allocation charged with generating returns and a liability hedging portfolio tasked with reducing overall risk in the portfolio. An allocation to risk mitigation that has included a significant, return-driving overweight to gold over the last year is designed to reduce negative tail events that can unexpectedly bite.

The pension fund also runs a Total Portfolio Approach, TPA, whereby public market allocations can be dialled up or down in relation to how other elements of the portfolio are performing. For example, if an allocation to an Australian asset is performing strongly, TPA allows the team to reduce exposure to Australian equity.

OPTrust is also supported by a tactical approach. For example, the investment team will change the liability hedging ratio depending on the level of interest rates – it was decreased significantly during the pandemic when interest rates went to zero. “This is one area we are actively tactical,” he says.

Another area of the portfolio where tactical moves pay off is currency hedging where the team currency hedge back to Canadian dollars. But strategy is not dogmatic and only done if it makes sense depending on the value of the Canadian dollar. The team might decide to leave more in the US dollar account in the risk mitigation portfolio as a precaution in times of stress when there is a flight to the dollar, for example.

Private markets pay

Like other investors, OPTrust has benefited from returns in US public equity where tech stocks have powered the index higher.

But Lindley singles out private equity, real estate and infrastructure as enduring champions of long-term success in the core allocation. Something he attributes to fact it is possible for investors to add value in these allocations by managing the asset directly. “When we invest, we take an active role to help them become a better company,” he says.

The allocation also provides valuable diversification as different elements provide different exposures to inflation, interest rates and return-type characteristics.

OPTrust targets zero portfolio emissions by 2050 and achieved an 11 per cent reduction in emissions intensity last year. Sustainability reporting is one area the fund takes an active role in portfolio companies, engaging to encourage companies to improve their reporting so the team can better understand the risks. “I feel we can add a lot of value for companies in the mid-market segment and growing stage to help them understand their carbon exposures and physical and transition risks. We can make a difference here.”

But Lindley say TCFD reporting is only part of the story. He is also mindful that the policy direction could change in Canada after the election. Even in Europe he notices more of a focus on business development and growing the economy than protecting the environment.

Green investments have seen good returns including star performing renewable energy investments in Spain and green bonds, he concludes

A private market equivalent benchmark is superior to either peer group benchmarks or a public market equivalent in measuring private equity and infrastructure manager outperformance, according to Frederic Blanc-Brude, director of Scientific Infra & Private Assets at EDHEC Asia Pacific.  

Speaking at the Fiduciary Investors Symposium in Singapore, Blanc-Brude said using a combination of private market benchmarks, the relevant cash flows and net asset value, and a well-established methodology known as direct alpha, can reveal a new perspective on manager outperformance. 

Referring to new research, Do private asset funds generate alpha, he showed that on average private asset managers do not deliver alpha if they are benchmarked against the appropriate index.  

It shows that private market risk is the primary driver of returns in private asset funds. Further asset allocation alpha is positive or in other words fund managers create value by taking contrarian bets on specific sectors. 

The paper looks at how to measure alpha in a way that will greatly improve how private markets managers are selected, according to Blanc-Brude, with the current method inferior due to a forced trade-off between a robust peer group and granularity. 

EDHEC estimates that the private asset market is made up of millions of companies across 150 countries with combined assets of $65 trillion, and Blanc-Brude argues “a more prudent approach to selecting these managers” would be to use a benchmark for this market made up of the underlying companies. EDHEC has derived two benchmarks – the private2000 and infra300 indices – which are based on a robust asset pricing model that reprices one million companies monthly. 

“Because so far, we have been looking at our peer group of funds, we’ve been conflating two things, the beta of the fund, in other words how much is exposed to this private asset market, and the alpha of the manager, how much they beat the market,” he said. “It’s all mixed together because you can’t tell which is which. And the prudent investor should try to select fund managers that can at least deliver the market, deliver the beta of private equity, and ideally do better.” 

Blanc-Brude dismissed the idea of using a benchmark made up of a public-market equivalent, saying “the only information that gives you is if you’re better of investing in an ETF versus private equity”. 

“Which is interesting, it’s not zero information, but that’s all it’s going to tell you. It’s certainly not going to help you to find the best manager.” 

“So in order to select the best managers that are the most likely to create value, you should be using an index which allows you to distinguish between their exposure to a market, which is the market they invest in, this private market, and which part of what they do is outperformance.” 

The study also segments managers into four categories according to positive or negative alpha and positive or negative beta, noting there are those that are “quite special” who have negative beta but positive alpha. 

These are really those who are managing to create value without getting too much market risk exposure.  

After years of underperformance the Chinese stock market had strong gains at the beginning of 2025, giving investors confidence that the country might be getting some of its pre-COVID mojo back.  

While underlying concerns about the world’s second-largest economy such as weak consumer demand still persist, the A$170 billion Aware Super said China is too significant a market to not invest in. 

“It’s really hard for any global investors to completely ignore China,” head of equities Agnes Hong told the Top1000funds.com Fiduciary Investors Symposium in Singapore.  

“I do think, though, that there’s been a bit of a shift recently in investment sentiment.  

“In late last year, we are seeing a lot of inflows back into China, especially with the ADRs (American depositary receipt) list in the US away from some of those EM ex-China products.” 

Hong also made the distinction between the Chinese market rallies in last November and this year. While the former was driven by top-down stimulus policy announcements, the latter is related to bottom-up factors where investors are re-evaluating Chinese companies after DeepSeek launched its breakthrough AI model.  

In February, Chinese president Xi Jinping also met with business leaders in the country – including Alibaba’s Jack Ma, who has been away from the limelight in 2020 – in a signal that the nation is shifting to a friendlier stance towards the private sector.  

That was followed by more supportive economic policies, announced in the nation’s top annual political and social meetings the Two Sessions in March, to boost consumer spending and stabilise risky areas including real estate and local government debts.  

“You’ve got one hand, the bottom-up rally, and then the other hand supported by the government policies. So that’s why I think there’s a lot of sentiment that [in] this rally, the momentum could have room to grow,” Hong said.  

But due to the complexity of the Chinese market, Hong said it is critical for allocators to recognise that how they gain access to it is just as important as the capital allocation. Choices like onshore vs offshore equities, active vs passive, and state-owned enterprises or the new economy including service-led sectors, all matter.  

Aware Super was one of the first Australian super funds to receive a QFII license in 2016, which allows foreign investors to participate in mainland China’s stock market. Its public equity exposure is far greater than its private equity exposure and is mostly managed by EM and global active managers both onshore and offshore.  

“We have to go down to the granular level [when investing in China],” Hong said.  

“It’s very dangerous to paint a whole country or even a whole sector with a broad stroke. So what we are all about is selectivity over broad beta. As long-term investors, we are looking at some of those security selection opportunities.” 

UK investor Coal Pension Trustees, which oversees about £20 billion of investments in Mineworkers’ Pension Scheme and the British Coal Staff Superannuation Scheme, is an equity investor in China but also has exposure to liquid credit.  

Chief investment officer Mark Walker said it is somewhat an “unusual” fund, in the sense that it has a mature profile but the British government is its guarantor. It still takes a lot of investment risk, and in 2018 China was the perfect place to get it.  

Today, around 12 per cent of Coal Pension Trustees’ private equity portfolio is still in Chinese funds, but it stopped committing new capital three years ago.  

“We pay out in pensions about £1.6 billion a year, so our payout ratio is about 8 per cent. Cash flows are absolutely critical,” he said.  

“The biggest issue with China, and actually legacy private equity more generally, for us, is not whether we still think we’ve got good investment, but when we actually get the cash back. 

“We have to sell over a billion pounds of assets every year just to pay pensions, so if we don’t get the cash flow from Chinese private equity, in this case, then we have to get it from somewhere else.” 

Despite the uptick in anti-ESG sentiment that’s come with Donald Trump’s return to the White House, large institutional investors are certain that innovations in transition technology will continue and that the broader world has not changed course on the journey to decarbonisation.  

“It’s odd, and certainly you get mixed signals,” said T. Rowe Price’s US-based investment director of private equity, Orlando Gonzalez, at the Top1000funds.com Fiduciary Investors Symposium in Singapore.   

“You get a lot of messaging around increasing drilling, increasing the use of fossil fuels, reducing subsidies for individual taxpayers for electric vehicles, and we’ve seen that for some time across some of the red states in our country. 

“But then you are also seeing…a Tesla dealership being set up on the South Lawn of the White House.” 

T. Rowe Price’s private equity unit has significant investments in late-stage venture capital – firms that are two to four years to an IPO. Its sustainability-related private investment is US-centric and includes areas like battery storage. 

But despite the uncertainties stemming from politics, Gonzalez said the US is slowly but surely increasing its EV adoption rate, while in other areas of the world like China and some parts of Europe the adoption rate has surpassed 50 per cent.  

“We’re heading in that [electrification and decarbonisation] direction, albeit it’s going to be a bumpy ride for the next just under four years,” he said.  

The C$473 billion Caisse de dépôt et placement du Québec (CDPQ) is also firm in its position that all significant investments need to pass through its sustainable investing approach.  

The Canadian pension investor has a target of investing C$54 billion in low-carbon assets by this year, which it is on track to meet. Managing director and head of Asia Pacific Wai Leng Leong said there has been no shortage of sustainability-oriented opportunities for CDPQ to meet its commitments, with a focus on decarbonising the real economy. 

One example is réseau express métropolitain (REM) which is a public-private partnership between CDPQ’s subsidiary – CDPQ Infra – and the governments of Quebec and Canada to design, build and operate a 67km light speed rail system across greater Montreal. It is entirely electrified and automated and is reportedly the least expensive new public transit system built in North America. 

“A lot of us are here sitting in Asia thinking ‘what’s the big deal’? But it is a very big deal in Quebec, because that’s the largest public infrastructure project in over 50 years,” Leong said.  

T. Rowe Price’s Gonzalez observed the needs for similar kinds of public-private partnerships in the US, especially across water, transportation and electric infrastructure.  

“[Infrastructure] has really been an area where we’ve under invested for decades,” he said. “One, it creates lots of jobs in the [US] economy – which is doing well, but could certainly do better.” 

“[Secondly], it’s an area where we’re bleeding a lot of resources. By improving the infrastructure, we could really have an important climate impact as well.” 

Investors in the Asia-Pacific region must be better prepared for the impact of President Trump’s “national securitisation of everything” strategy, which is blending defence and commercial imperatives, according to Michael Shearer, senior counsellor for Asia-Pacific at Veracity Worldwide. 

Shearer – speaking at the Top1000funds.com Fiduciary Investors Symposium before President Trump this week unveiled hefty tariffs across dozens of trade partners which sent markets plummeting – said the current pace of geopolitical change was unprecedented.  

A key shift was the US government designating an ever-widening array of issues, assets and industries as strategic to national security. 

“What happens when commercial imperatives take a back seat to strategic ones?” he asked at the symposium in Singapore.  

“How do we assess business cases and investment propositions when the targets are not purely commercial in nature, and then as the lines between commercial technologies and services and defence blur, are we comfortable and equipped to be investing in defence?” 

Investors must now navigate greater regulatory complexity and enforcement risk, as the country that ultimately owns and controls a business matters as much as where it is located, he said.  

His comments proved prescient as companies with complex global supply chains, such as Apple, Nike and Adidas, were heavily sold off after President Trump unveiled tariffs of at least 10 per cent starting April 5.  

Shearer referred to this rising challenge facing investors, with one global asset owner holding investments across three key impacted verticals: energy transition, emerging technologies, and critical minerals.  

“If you’re looking, for example, at a long-range investment into, say, a data centre, there are real issues to consider now when it comes to who is used to put in place the undersea cables for data and for power.” 

Shearer recommended asset owners recalibrate their mindset to include a greater awareness of geopolitical implications and understand the pain points in their portfolios. 

This included systematically mapping out the impact of new policies and tariffs (broken down by location and ultimate ownership) in an environment of heightened political risk.   

“We’re aware of some investment firms running China exposure checks for every deal they’re doing, regardless of jurisdiction or asset to make sure that the suppliers, customers, or the very sector they’re investing in, doesn’t make them vulnerable to sanctions or censure.” 

Shearer pointed towards two major potential risks in the years ahead.  

One was the high chance of an earthquake in Tokyo sometime in the next 30 years, which would be catastrophic for supply chains. The other risk is Taiwan where tensions have been escalating with China, although Shearer said Trump is currently more focused on resolving the Ukraine-Russia war. 

With the ability to uncover hard-to-find information and enable more frequent trading in traditionally illiquid asset classes, new technologies like artificial intelligence and tokenisation could be the biggest disruption most private markets investors will see in their lifetime. 

At the Top1000funds.com Fiduciary Investors Symposium, head of research at FCLTGlobal Eduard van Gelderen said the digitisation of private market information that is taking place will have big consequences for investors. For one, data will cost less.  

“There is already a lot of data out there related to private markets. But is it readily available? No,” the former PSP Investment chief investment officer told the symposium in Singapore.  

“Unfortunately, some of those [private market] databases are still very expensive, but the data is there. And the reason why the data is there, is because this whole society is full of sensors. Everything is monitored. 

“It’s a question of time before that data really becomes available.” 

Secondly, technologies will change what investors do with the data. If private markets were to become like public markets with the volume of information available, van Gelderen said the biggest problem for investors then having too much data to make effective investment decisions.  

One thing AI is particularly good at, at least in short-term strategies, is sorting through noise and identifying the underlying market signals, said van Gelderen. 

“If you look at what is available now in practice, but also in academic research, then what you see is that AI is actually a very helpful tool in getting profitable investments strategies in place – alpha generation,” he said. 

Another technology with private market applications that van Gelderen is bullish on is tokenisation – the process of converting an asset or the ownership of an asset to a digital form using blockchain. And there have already been tokenisation experiments in private equity.   

Last year, Citigroup, with asset managers Wellington Management and WisdomTree, completed a simulation exploring how private equity funds can be tokenised while staying compatible with existing bank systems. 

There are several appeals of tokenising private assets, van Gelderen said. Apart from increased liquidity, tokenisation can enable the ownership of small fractions of an asset, which could lower the barrier to entry for retail investors, and allow for faster and automated transaction processes that complete in minutes, if not seconds. 

“When people talk about tokenisation, immediately, they think trading Bitcoins … that respect, I find pretty irrelevant,” van Gelderen said.  

“What is important is the technology of blockchain, and blockchain is actually very dependent on tokenisation.” 

He believes tokenisation will be a key method for boosting trading in private markets in the future.  

“[The likes of] secondary markets, it’s great that it’s there, but at the end of the day, it’s still very traditional. There’s a seller and we have to look for a buyer, and then we start to negotiate stuff. 

“I’m a firm believer that tokenisation will make private markets or private assets liquid going forward.”