Rian Howlett , Karen Friar and Ines Ferréof Yahoo Finance report the Dow, S&P 500, Nasdaq slip, chip stocks rise as Wall Street ends volatile week lower:

US stocks were little changed on Friday despite growing uncertainty over the next Fed chair, while strong bank earnings and ongoing geopolitical tensions capped a volatile week.

The tech-heavy Nasdaq Composite (^IXIC) fell below the flat line, while the S&P 500 (^GSPC) was little changed. The Dow Jones Industrial Average (^DJI) declined slightly, with all three major averages losing less than 1% for the week.

The Russell 2000 (^RUT) closed at a record high as the small-cap index extended year-to-date gains to 8%.

Stocks gave up earlier gains on Friday after President Trump expressed fresh reluctance to name Kevin Hassett as the next Fed chair, fueling speculation that the central bank may not be as dovish as the market expected once Jerome Powell steps down in May.

"I actually want to keep you where you are, if you want to know the truth," he told Hassett at a White House event.

Wall Street is regrouping after a switchback week, marked by escalating Iran tensions, a dispute over Greenland, and a criminal probe risking the Federal Reserve’s independence — all with Trump behind them. Investors have a long weekend to digest those events, as stock and bond markets are closed on Monday for Martin Luther King Jr. Day.

TSMC (TSM) and Nvidia (NVDA) rose, thanks in part to a US-Taiwan trade deal that promises a $250 billion boost to American chip and tech manufacturing. On Thursday, shares in TSMC popped following a strong quarterly report that revived AI enthusiasm to buoy related stocks more widely.

Shares of regional banks such as PNC (PNC) and Regions Financial (RF) rose on the heels of quarterly results following strong performance from Wall Street majors. Goldman Sachs (GS) and Morgan Stanley (MS) shares rose Thursday after posting profit gains, giving a lift to financial stocks.

Meanwhile, silver (SI=F) fell as the threat of US tariffs eased, but prices were still up more than 15% for the week after a long-lived blistering rally for precious metals. 

The New York Stock Exchange, Nasdaq, and bond markets will be closed on Monday, Jan. 19, in observance of Dr. Martin Luther King Jr. Day.

Sean Conlon and Pia Singh of CNBC also report S&P 500 closes little changed Friday, posts weekly loss amid raft of Trump comments:

The S&P 500 ended Friday just below the flatline and posted a losing week as traders weighed the latest comments made by President Donald Trump related to the Federal Reserve and geopolitics.

The broad market index slipped 0.06% and closed at 6,940.01. The Nasdaq Composite inched down 0.06% to settle at 23,515.39. The Dow Jones Industrial Average fell 83.11 points, or 0.17%, to end at 49,359.33.

The three major averages hit their session lows after Trump delivered remarks in the White House Friday, in which the president said he’d rather have National Economic Council Director Kevin Hassett stay in his current role and that he might not be chosen to become the next Fed chair.

“I actually want to keep you where you are, if you want to know the truth,” Trump said.

Hassett had been seen as a frontrunner to replace Fed Chair Jerome Powell, whose term expires in May, but prediction markets showed former Fed Governor Kevin Warsh moved ahead in the race following the president’s remarks. Traders see Hassett as the more market-friendly option to replace Powell, with Wall Street expecting him to be more willing than Warsh to keep rates low.

“Whether it’s Hassett or someone else, I think the assumption that we — at least most of us — have is that whoever it’s going to be, this person is going to certainly have a political motive and not the more traditional, trying-to-be-fully-objective mindset in regards to leading the Fed,” said David Krakauer, vice president of portfolio management at Mercer Advisors. “That threat to the independence of the Fed is certainly, you know, a concern for us and everyone.”

The major averages are coming off a winning session thanks to gains in chip stocks. Taiwan Semiconductor led the advance after a blowout fourth-quarter report. Further, the U.S. and Taiwan reached a trade agreement in which Taiwanese chip and tech companies will invest at least $250 billion in production capacity in America.

Taiwan Semi and other chip stocks like Broadcom and Advanced Micro Devices were higher Friday.

Bank stocks were weak in the weekly period despite strong earnings as concerns around Trump’s call for a cap on on credit card interest rates persisted. JPMorgan Chase and Bank of America were among the laggards, falling 5% each on the week.

It was a hectic week for investors. They’ve been grappling with a slate of headlines out of Washington, running the gamut from worries over threats to the Fed’s independence to heightened geopolitical risk in Iran and Greenland. Geopolitical risk was exacerbated Friday after Trump said he might impose tariffs on countries “if they don’t go along with Greenland.”

For the week, the S&P 500 posted a 0.4% fall, while the 30-stock Dow dropped 0.3%. The Nasdaq was down 0.7% on the week.

Alright, going to be brief tonight.

Earnings started this week with the big US banks kicking things off and it was mixed as JPMorgan (JPM), Bank of America (BAC) and Wells Fargo (WFC) got hit while Goldman Sachs (GS) and Morgan Stanley (MS) did relatively well following their earnings.

Not surprisingly, for the week, the S&P Financials sector was the worst performer, down 2.3%:

Still, when I look at the State Street SPDR S&P Bank ETF (KBE), the 5-year weekly chart remains bullish for now:

What else caught my attention this week? The VanEck Semiconductor ETF (SMH) made a new record high on great news from Taiwan Semiconductors:

It's fair to say Super Semis (Nvidia, Broadcom, Taiwan Semi, Micron, AMD, etc) have displaced the Mag-7 as the AI theme dominates early in 2026 but they are way overbought here and will definitely pull back before resuming a new uptrend.

What else? The obesity drug makers took off this week led by Novo Nordisk which had a terrible 2025 but seems to be coming back here:

Still early to call a major shift in trend but I like what I'm seeing and need to see a pullback followed by another surge higher.

Eli Lilly had a flat week but has a had a great year so far:

Structure Therapeutics was one of the best-performing large cap stocks this week as investors are excited about phase 2 data from their oral pill and are maybe betting on a takeover:

And Viking Therapeutics also caught a bid this week as investors await phase 3 data on its oral pill touted to be one of the best in the industry:

 Lots of volatility in these names, all I know is Fidelity has cornered this market and is in all of them.

Alright, that's pretty much it from me, Monday is Martin Luther King Day, enjoy the long weekend.

Here are this week's top-performing large cap stocks (full list here): 

Below, Warren Pies, 3Fourteen Research, joins 'Closing Bell' to discuss how Pies would characterize the macroeconomic backdrop, where the market may stumble and much more.

Also, the CNBC Investment Committee debate the road ahead for the rally and how to position your portfolio.

Third, New York Times columnist David Brooks and Jonathan Capehart of MS NOW join Geoff Bennett to discuss the week in politics, including President Trump threatening to invoke the Insurrection Act against protests in Minnesota, Trump's meeting with Venezuelan opposition leader Marina Corina Machado and his continued threats to take over Greenland.

Lastly, Senator Bernie Sanders addresses the nation warning about Trump's authoritarianism. Have a listen, scary that he's not far off in his remarks.

Freschia Gonzales of Pensions and Benefits Monitor reports CPP ‘enhancement’ leaves workers paying more for less: 

Ottawa’s latest Canada Pension Plan hike will raise contributions for an $85,000 earner by nearly 80 percent over eight years, even as active management by the Canada Pension Plan Investment Board trails its own benchmarks. 

According to Matthew Lau in the Financial Post, someone earning $85,000 will face combined worker and employer CPP contributions of $9,292.90 in 2026, once the newer “CPP2” layer that began in 2024 is fully in place.  

Lau calculates that as an annual CPP tax increase of 4.9 percent, more than double the current 2.2 percent inflation rate, and a cumulative increase of 79.1 percent in nominal terms over eight years, or about 42.1 percent after inflation. 

Lau writes that Ottawa brands this as “the CPP enhancement,” and notes that in 2017 the federal government justified the changes by saying they would help Canadians “meaningfully reduce the risk of not saving enough for retirement.”  

He argues, however, that higher CPP taxes today do not mean workers are directly saving more for their own retirements.  

Instead, current contributions fund benefits for today’s retirees, with the expectation that the next generation of workers will fund future benefits alongside investment returns from the Canada Pension Plan Investment Board. 

On investment performance, Lau points to the CPPIB’s shift from passive to active management in 2006. As per his article, expenses “exploded” and head count rose from 150 to more than 2,100.  

Citing the CPPIB’s Annual Report 2025, he notes that “over the past five years, the Fund earned a net return of 9.0 percent, compared to the Benchmark Portfolios return of 9.7 percent.”  

Over the full period since active management began, he writes that “the Fund generated an annualized value added of negative 0.2 percent,” which he describes as a “sizable erosion of Canadians’ retirement savings” when compounded over 19 years. 

In the Financial Post, Lau also links some underperformance to what he characterizes as political decision-making.  

He notes that in early 2022, the CPPIB “committed to transitioning its operations and investments to net-zero emissions by 2050,” and that it has “since abandoned that commitment.” 

On the policy rationale, Lau frames the CPP’s premise as the idea that some Canadians would not save enough for retirement on their own, so government should compel everyone to contribute to a public pension fund to reduce under-saving.  

To challenge that logic, he uses an analogy: because some Canadians are overweight, the federal government could impose a “CEE (Canada Exercise Equipment) payroll tax” to send exercise equipment to every household to deal with “under-exercising.”  

He asks why, if the state can dictate a minimum level of retirement saving, it should not also decide how much people spend on “groceries, shelter, electronics, transportation, travel and so on.” 

According to Lau, higher mandatory CPP contributions reduce workers’ ability to save elsewhere.  

He argues that higher taxes and smaller paycheques leave less money for TFSAs, RRSPs and other investments, so a higher CPP tax “may not actually increase overall retirement savings.” 

To support this point, Lau cites the Fraser Institute’s 2016 publication “Five Myths Behind the Push to Expand the Canada Pension Plan.”  

He writes that Fraser Institute economists concluded that “any increase in the CPP will be offset by lower savings in private accounts,” based on a study of CPP tax hikes between 1996 and 2004.  

He lists four other “myths” from the same report: that Canadians do not save enough for retirement on their own; that the CPP is a low-cost pension plan; that it produces excellent returns for workers; and that its expansion would help financially vulnerable seniors. 

Lau also emphasizes design and flexibility. He notes that those saving privately can draw down assets for a down payment on a house, but cannot access CPP contributions.  

He raises the case of someone with a terminal illness who is not expected to live to retirement age and questions whether it is sensible for government to force such a person to save for retirement “especially through the CPP.”  

In that scenario, private savings can pass to family members; CPP contributions, he argues, do not provide the same benefit. 

Lau concludes that “the CPP hurts workers” because individuals, not the federal government, have the best information and incentives to manage their finances.  

In his words, “personal finance is, after all, just that: personal finance. It is not, and should not be, government finance.”  

Let's read Matthew Lau's article published in the Financial Post where he advocates to shut down the tax-financed Canada Pension Plan:

In 2026, for the eighth year in a row, Ottawa is whacking workers with a Canada Pension Plan tax hike. For someone earning $85,000, the combined worker and employer CPP tax in 2026 is $9,292.90, including the government’s new “CPP2,” which was imposed beginning in 2024. That’s an annual tax increase of 4.9 per cent, more than double the current inflation rate of 2.2 per cent. At $85,000 annual earnings, the cumulative tax hike over eight years is 79.1 per cent in nominal terms, or about 42.1 per cent after accounting for inflation.

The government calls its tax hike “the CPP enhancement” and back in 2017 justified it by saying it helps Canadians “meaningfully reduce the risk of not saving enough for retirement.” But by paying a higher CPP tax, workers today are not actually saving more for their retirements. They are paying for benefits to retirees today, with the expectation that when they retire they will receive benefits funded by CPP taxes on the next generation of workers, plus any investment returns from the Canada Pension Plan Investment Board (CPPIB).

But even if workers were able to directly fund their retirements through CPP taxes, it would still be a bad, wasteful government program. The CPP’s premise is that some Canadians would not save enough for retirement on their own, so everyone should be forced to pay into a pension fund to reduce these people’s under-saving. By the same logic, since some Canadians are overweight, the federal government should impose a CEE (Canada Exercise Equipment) payroll tax to fund shipments of exercise equipment to everyone’s house to mitigate the problem of under-exercising.

For that matter, if the government needs to force everyone to save a certain amount for retirement each year, why not also have it decide how much everyone should spend on groceries, shelter, electronics, transportation, travel and so on?

Higher taxes and smaller paycheques mean workers have less money to contribute to TFSAs, RRSPs and other investments, so a higher CPP tax may not actually increase overall retirement savings. In a 2016 publication “Five Myths Behind the Push to Expand the Canada Pension Plan,” Fraser Institute economists argued that “any increase in the CPP will be offset by lower savings in private accounts,” which was the conclusion of an earlier study on CPP tax hikes between 1996 and 2004. The other four CPP myths? That Canadians do not save enough for retirement on their own; that the CPP is a low-cost pension plan; that it produces excellent returns for workers; and that its expansion would help financially vulnerable seniors.

In recent years, these arguments against expanding the CPP have only gotten stronger. Since switching from passive management (i.e., tracking broad market indices) to active management in 2006, the CPPIB’s expenses have exploded and its employee head count has increased from 150 to more than 2,100. Canadians forced to pay into the CPP have not benefitted from this increased cost. “Over the past five years,” according to the CPPIB’s Annual Report 2025, “the Fund earned a net return of 9.0 per cent, compared to the Benchmark Portfolios return of 9.7 per cent.” So with the CPP, Canadians have paid more to get less.

Measuring the performance of the CPP since the inception of active management by comparing its return to the benchmark portfolios, “the Fund generated an annualized value added of negative 0.2 per cent.” Compounded over 19 years, that is a sizable erosion of Canadians’ retirement savings. Some of this underperformance might well be attributed to playing politics with Canadians’ savings: in early 2022, the CPPIB committed to transitioning its operations and investments to net-zero emissions by 2050. Thankfully, it has since abandoned that commitment.

In addition to its financial underperformance, the CPP gives Canadians less flexibility and less choice than private options. If someone wants to buy a house, they can draw down their private savings to make a down payment, but they cannot withdraw from what they have paid into the CPP. Or suppose someone has a terminal illness and is not expected to live to retirement age. Is it sensible for the government to force this person to save for their retirement — especially through the CPP? Upon their death, their private savings can be passed down to their family. Not so the money they were forced to pay into the CPP.

The CPP hurts workers because individuals themselves, not the federal government, have the best information and incentives to manage their finances. Personal finance is, after all, just that: personal finance. It is not, and should not be, government finance.

Wow, lots of misinformation here, almost all of it is pure rubbish.

I've seen these articles over the years and they're typically hit jobs that pander to Canada's large banks, mutual funds and insurance companies which detest the CPP and CPP enhancement.

Why? Well, as the author states it in his article, more CPP contributions (not taxes!) means less money to spend on RRSPs, TFSAs and taking out bigger mortgages to buy a big house which Canadians can't afford but banks love as they make a killing off them.

Also less money for mutual funds and wealth management outfits which is an important and growing source of revenues for big banks.

Right-wing research centres like the Fraser Institute pander to Canada's financial services industry so I take everything they publish with a shaker of salt.

And to be clear, I'm right of centre in my politics and economic views but I can't stand reading right-wing and left-wing nonsense, it irritates me.

This article is complete nonsense which not surprisingly the Financial Post published without any editorial scrutiny. 

Let's start off with why enhanced CPP was introduced in the first place and why it's critically important for future generations.  

A year ago, Canada Life published an excellent comment on enhanced CPP which you can read here. 

Please note this part:

Why is the CPP enhancement necessary?

There are many reasons why the CPP enhancement is necessary:

• To reduce the number of families at risk that haven’t saved enough for retirement.
• The effect of inflation and the cost of living on retirement income.
• Younger workers are facing challenges which make saving for retirement more difficult.
• Pensions have changed to defined contribution plans from defined benefit plans.

How the CPP enhancement works

Until 2019, the CPP replaced 25% of your average work earnings. The federal government determined this average based on yearly annual pensionable earnings (YMPE) from employment or self-employment up to the maximum earnings limit in each year.

The enhancement means the CPP will begin to grow to replace 33.33% of the average work earnings you receive after 2019. The maximum limit of earnings protected by the CPP will also increase by 14% between 2024 and 2025.

The CPP enhancement will increase the maximum CPP retirement pension by more than 50% if you make enhanced contributions for 40 years. 

So, CPP enhancement will not impact retirees or Canadians close to retirement, it will mostly impact those entering the workforce this year.

Importantly, the main reason why CPP enhancement was introduced was because policymakers recognized that more needed to be done to bolster the Canadian retirement system. 

Too many Canadians are retiring with too little savings, have no defined-benefit plan and then become reliant on programs like Old Age Security and Guaranteed Income Supplement to retire on and that's simply not enough and these programs are pay-as-you-go and place fiscal pressure on the federal government as more Canadians retire with little to no savings.

The other problem? The housing market has become the de facto national retirement policy for many Canadians betting housing prices can only go up and their houses will sustain them into their old age through CHIP reverse mortgage programs and others similar to it.

But housing prices don't always go up and this isn't a sound retirement strategy, it lacks diversification.

Then there are RRSPs and TFSAs which are mostly used by high income earners as most Canadians can't afford to put the maximum allowable amounts every year and even those who do, the onus falls on them to make wise investments for their future.

Having a professionally managed national pension fund with experts who invest across public and private markets globally isn't cheap, you need to pay these people, but it offers all Canadians the opportunity to pool their contributions and in return, get a safe, secure, inflation adjusted benefit for life when they retire.

Keep in mind, most Canadians working in the private sector have no access to a gold-plated defined-benefit plan, their CPP benefit is the closest thing they have to that and this is why policymakers decided to enhance the CPP. 

And as more Canadians retire in dignity and security, they spend more in retirement, and that's good for the economy and governments that collect sales taxes. It's good for the Canadian economy.

All this is totally lost on Matthew Lau, he thinks the answer is to allow Canadians to keep their money to spend it on what they want, to invest more on RRSPs and TFSAs even though this is a miserable failure and will not make a dent in their retirement.

Let's be crystal clear, TFSAs, RRSPs are good for savings but they do not match what CPP Investments does with CPP contributions and do not offer the same guaranteed inflation-adjusted income for life as CPP benefits.

Again, you have a national pension fund which is highly diversified investing and co-investing with the best public and private equity managers all over the world, including hedge funds, and we take all this for granted but it's a national treasure, other countries would kill to have such a professionally managed nation pension fund with world-class governance.

What about Lau's claims that the CPP Fund has underpeformed its benchmark over the last 5 years and since introducing active management back in 2006? That may be true but the benchmark they had originally was impossible to beat because it was 85% MSCI World Index/ 15%  Canadian Government Bonds.

I personally always hated that benchmark and thought it was terrible because it's easy to beat in down years but hard to beat in roaring bull markets like the one we are in now.

It also distracts from the fact the CPP Fund has more than enough assets to meet future liabilities over the next 75 years according o the Chief Actuary of Canada and that's what ultimately counts the most.

CPP Investments' CEO John Graham is a huge believer in diversification and truly believes the Fund's diversified approach across public and private markets is the right one over the long run and he's absolutely right.

There will always be critics who claim passive indexing is the way to go but they don't get it, public markets are too volatile, contribution rates need to be stable and the right approach over the long run which also includes bear markets is a more diversified approach, that's the responsible thing to do.

And again, pension funds are not there to beat the S&P 500 year in, year out, they are there to make sure they have more than enough assets to cover long-dated liabilities.

What else? Lau writes this:

Or suppose someone has a terminal illness and is not expected to live to retirement age. Is it sensible for the government to force this person to save for their retirement — especially through the CPP? Upon their death, their private savings can be passed down to their family. Not so the money they were forced to pay into the CPP. 

I admit the CPP isn't perfect and needs more flexibility but he also fails to understand CPP's death benefit and survivor's pension. 

Most Canadians don't have a clue about these programs and I blame the federal government for not doing a better job explaining them to them not just through websites but YouTube tutorials etc. 

Anyways, take everything Matthew Lau writes against CPP enhancement with a shaker, not a pinch of salt, he a hack and I would ignore him and the Fraser Institute (all hacks for Canada's powerful financial services industry). 

Below, are you confused about the recent Canada Pension Plan (CPP) enhancements? In this episode of the Steadyhand Coffee Break Series, David Toyne interviews Jason Yee, an advice-only financial planner, to break down the changes and their impact on your retirement planning. Learn about the recent enhancements to the Canada Pension Plan (CPP) and how they impact your retirement, who benefits most, and what it means for employees, self-employed individuals, and employers.

Also Owen Winkelmolen, certified financial planner, discusses the benefits of CPP2 (enhance CPP), explains CPP, OAS, GIS and provides an excellent breakeven CPP analysis. 

Lastly, what happens to CPP when you die? Watch this excellent video clip to understand the death benefit, the child's benefit and the survivor's pension.

Mark Harris, Ihab Khalil, Nolan Harte, Johannes Glugla, Christy Carter, and Andrew Claerhout of BCG wrote an insightful comment on how private equity’s advantage is shifting, not shrinking:

The past three years of public-market strength have made private equity an easy target. Returns from a small group of mega-cap stocks have driven public indexes sharply higher, giving investors both stronger short-term performance and full liquidity. That combination has widened the gap with private markets and renewed debate about PE’s value proposition.

Long-term investors might wonder why they should stay committed to an asset class that has lagged public markets and offers less flexibility in reallocating capital. The question is not without merit. Measured on a money-weighted basis, PE has only modestly outperformed broad public benchmarks over the past five and ten years.

PE marks also tend to move more slowly than public valuations, especially on the downside. That lag can make the asset class look artificially stable during market reversals, as seen in 2021 and 2022. In economic terms, true volatility likely sits between the smoother reported marks and the sharper swings of listed equities.

Yet, despite the skepticism, the case for PE remains strong, and may even be getting stronger. What’s changing is how value is identified, measured, and shared. This article explains why the playbook for institutional investors and managers is due for an update. 

I invite my readers to click here to read the full comment, well worth it. 

Below, you can read the key takeaways:

The big change in PE is that returns can finally be taken apart—growth, margin, leverage, multiple—and investors can choose managers who excel on those fundamentals.

• Returns are becoming easier to read. Investors can now break performance into growth, margins, leverage, and multiple to separate operating skill from market lift with tools that did not exist five years ago.
• Manager selection is getting sharper. Managers in the top quartile repeat that level of performance about 45% of the time and stay in the top half about 80% of the time. Moreover, top-quartile funds outperform those in the bottom quartile by 13 points in annual internal rate of return.
• Steady allocation still wins. Avoiding the three worst vintages adds just 0.8 points, while disciplined pacing and backing proven operators protects diversification and positions programs for recovery.

Let's dive into these key takeaways beginning with how data-enabled manager selection is finally practical:

Allocators now have the tools to evaluate managers with a level of precision that was impossible even five years ago. They can analyze deal-level value bridges, tracing realized multiples on invested capital back to their drivers such as growth, margin expansion, multiple change, and deleveraging. These methods separate true operating skill from market lift. Public market equivalent (PME) and direct alpha analyses place PE cash flows on the same timeline as public indices, converting outperformance into clean measures of multiple and annualized excess return. With richer data and model-assisted screens, it’s now possible to identify strong operators and at minimum, systematically avoid the bottom quartile.

A handful of factors consistently predict whether a PE firm avoids the bottom quartile. These include clear sector focus and specialization, disciplined fund growth of no more than 25% from one vintage to the next, and a healthy pace and breadth of distributions to paid-in capital rather than reliance on a few big wins. Strong performers also tend to show tighter deal dispersion with fewer tail losses and outliers, and more accurate underwriting, reflected in closer alignment between expected and realized value.

To turn these insights into process, LPs can formalize a few practical tools, such as a value-creation audit that dissects realized deals to separate operating contribution versus market lift. A performance-persistence matrix can track how managers sustain results across vintages, and a selection-uplift model can help companies estimate top-half direct alpha based on operating and process features. Overlaying these with access and pacing maps, spanning co-investments, separately managed accounts (SMAs), and re-ups helps determine how much capital to allocate to repeatable operators while maintaining diversification. 

Next, steady PE allocation preserves diversification and returns potential:

Reducing PE exposure now would effectively trade lower-multiple private businesses for higher-multiple public mega-caps. Skipping 2025 and 2026 vintages would further overweight the weaker 2021 and 2022 cohorts, eroding time diversification and creating a vintage hump that concentrates risk in the least attractive entry years.

Maintaining disciplined pacing, re-upping into proven franchises, and using co-investments or separately managed accounts to scale repeatable operators preserves program balance and improves the odds of capturing the next upcycle.

History shows that attempting to time the PE market by skipping vintages rarely works. For example, an investor who avoided the three worst vintages over the past 20 years would generate a gain of just 0.8 percentage points over one who invested steadily. (See Exhibit 2.) Considering how difficult it is to identify the “worst” vintages in advance, that lift is simply too low to justify the risk.

Contrast this performance with the lift that an investor would accrue by deploying capital in the top quartile versus the median over the past 20 years (20.7% compared with 13.7%, annually), and it becomes clear that the focus of allocators should be building long-term relationships with the best, most repeatable operators. Given that capital is relatively scarce right now, this is likely one of the best moments to go build some of those new relationships with general partners (GPs) who can identifiably generate repeat outperformance.

Our experience shows that pacing discipline is about doing enough, consistently, so that time diversification can work. That means codifying pacing bands so they do not oscillate with last quarter’s marks, anchoring underwriting on method, and using liquidity tools judiciously so optics do not prompt selling at a loss. 

What else? PE-backed firms may be positioned to capitalize on AI faster:

Many smaller companies see opportunities to apply AI across their value chains to boost efficiency and profitability. The investment case is often clear on paper, but execution usually falters. Most lack the internal expertise to pinpoint where AI creates impact, the capital to fund upfront development, and the discipline to sustain change once pilots begin.

Private equity sponsors, by contrast, can approach AI adoption through a portfolio lens. They underwrite both the operating gains and the valuation lift. Every additional $10 million in earnings before EBITDA can translate into roughly $100 million to $120 million in equity value at exit. They also bring fund-level operating partners, standardized playbooks, and access to specialist advisors who can identify and scale AI use cases across multiple portfolio companies.

That combination of capital, expertise, and operating discipline gives PE-backed firms a measurable edge over comparable small and midsize businesses. They cannot match the investment firepower of global technology giants, but within their segments they can move faster and more consistently. The pattern resembles earlier periods when PE sponsors institutionalized new disciplines such as structured pricing or systematic add-on M&A. Today, leading firms are taking the same approach to AI and embedding it portfolio-wide. As the early returns come in, we expect this trend will accelerate.

The comment concludes with what investors and managers should do now:

The insights we’ve just described offer leaders a practical way to evaluate performance. The goal is the same on both sides of the table: build conviction through evidence, and stay disciplined when conditions change.

For principal investors: The task is to identify managers whose methods are consistent, transparent, and proven to work through different cycles.

• Underwrite the GP’s method, not just marks. Require deal-level value bridges that separate operating improvement (EBITDA growth, margin expansion, multiple change, and deleveraging) from market lift. Tie these to a repeatable operating playbook that travels across sectors and vintages. Compare managers to the right public benchmarks using PME and direct alpha, not pooled IRR. Include attribution by source of value, so selection focuses on operating capability, not timing.
• Use access to back repeatable operators. Re-up into managers who demonstrate operating discipline and team continuity. Use co-investments and SMAs to scale exposure to the strongest deals without crowding risk.
• Engineer liquidity without destroying value. Keep pacing on track by planning for secondaries, continuation vehicles, and net asset value finance as tools of last resort. When they are used, lay out the full cost, conflict protections, and the path for distributions to paid-in capital to avoid being forced into selling at the wrong time.
• Model risk with clarity. Adjust for the smoothing inherent in private-market marks when setting policy limits and asset-liability models. Codify pacing bands so commitment levels do not rise and fall with recent performance, and clearly separate short-term optics from underlying economics in board materials so temporary drawdowns don’t trigger reactive selling.
• Concentrate where conviction is highest. Write larger checks with fewer GPs who demonstrate repeated capability. In exchange, seek not just lower fees but higher access, including advisory seats, operating seminars, or structured insights into deal flow. 

For GPs: Investor expectations are rising in parallel. Managers now need to show, not just say, how they create value, prove that it’s repeatable, and give LPs confidence that results can endure across cycles.

• Sharpen areas of focus. Many PE firms have already narrowed their sector priorities. But those that push one level deeper into specific subsectors can outperform. Specialized funds deliver returns that are roughly 200 basis points higher than others. LPs increasingly favor knowing more precise exposures in portfolio construction as their risk models become more nuanced.
• Build differentiated value-creation capabilities. Identify the value-creation levers that matter most within each subsector of focus and develop real strength in those areas. Build capability directly or through recurring partnerships. Make these capabilities part of your offer to management teams so the value is visible and credible, and incorporate them into deal sourcing. Target companies that would benefit from these levers rather than limiting the work to diligence and portfolio management.
• Make value creation measurable and auditable. Standardize deal-level value bridges, publish 100-day plans with milestones, and report hit rates. Demonstrating how the playbook holds across sectors and rate environments converts narrative into evidence.
• Open the data room for real diligence. Offer cash-flow information that will allow investors to compare direct alpha with PME. For example, managers that adopt standard cash flow and performance templates and provide replicable analyses such as PME-ready cash flows, entry-year cohorts, and value-creation breakdowns report materially shorter diligence cycles because LPs can validate performance more efficiently. This matters in a market where average fund closings now take about 21 months.
• Be a true partner on access. Offer co-investment opportunities that are reliable, timely, and easy to execute, something nearly 70% of LPs now expect, according to a recent Private Equity International survey. Consistency here builds credibility and strengthens alignment, often paving the way for earlier or larger commitments in future funds. Where possible, design fee and term structures that reward longer holds rather than financial engineering alone.
• Create deeper connection with critical LPs. Help LPs upskill their teams and include them earlier in diligence. Some managers now host semiannual operating workshops or portfolio-level data reviews. Those efforts often lead to larger re-ups as LPs concentrate commitments with managers they trust. Shared insight reinforces partnership and helps both sides defend the asset class in board discussions.

Great insights here, one of BCG's best comments because it was short and to the point.

I thank Andrew Claerhout for sending it over and recommend my readers go over it again here. 

I spoke briefly with Andrew tonight and he explained how it's much easier nowadays to conduct a deep dive in terms of performance attribution to separate EBITDA growth from leverage and multiple expansion. 

So if a GP buys a deal day at 1X and sells it later at 2.5X, you can easily understand what percentage came from debt, multiple expansion and value creation (EBITDA growth).

The trick is to identify the people who are driving EBITDA growth to see if they are able to repeat in different cycles. 

Writing larger tickets to fewer managers makes sense, it's been done for many years but with mixed results.

Vintage year diversification and pacing allocations is critically important.

On Monday, I discussed why Canada's top pension funds are rethinking their approach to private equity and discussed some of these issues but this paper goes into a lot more depth and offers great insights.

It is also worth noting BCG isn't the only shop discussing these issues. 

Below, some examples:

• JPMorgan: No, private equity has not lost its way  
• McKinsey: Braced for Shifting Weather
• Harbourvest 2026 Market Outlook 
• Bain 2025 Global PE Report 

Alright, going to wrap it up there and once again thank Andrew Claerhout for sending me this comment.

Below, Henry McVey, KKR CIO of balance sheet, joins 'Squawk Box' to discuss the firm's 2026 outlook. Great discussion, listen to his insights.

James Bradshaw of the Globe and Mail reports Dutch tax court rules Ontario pension plan wrongly claimed $346-million in tax refunds:

A Dutch tax court ruled this week that Healthcare of Ontario Pension Plan wrongly claimed nearly €214-million ($346-million) of dividend tax refunds through a trading strategy designed to take advantage of the pension fund’s favourable tax status in the Netherlands.

The court upheld the opinion of a tax inspector who found that in 445 transactions between 2013 and 2018, HOOPP was not the true beneficial owner of the Dutch shares that paid the dividends and so could not reclaim tax withheld against them, in a ruling published on Wednesday.

The decision is a setback for HOOPP in a long-running tax dispute, launched in 2019, which also led a Dutch prosecutor to initiate a separate criminal investigation in October. The tax court’s decision would require HOOPP to repay the refunded tax as well as about €40-million ($65-million) in interest charges.

“HOOPP is disappointed by this tax court ruling and will appeal the decision,” spokesperson Scott White said in an e-mailed statement. “This initial ruling on events that occurred between 2013 and 2018 will have no impact on HOOPP’s ability to pay pensions to our members today or in the future.”

HOOPP declined to make further comment on the case because it is still before the courts.

The key issue in the tax dispute – and the more recent criminal inquiry – is whether HOOPP met the test to be considered the beneficial owners of shares traded on the Dutch stock exchange. Dutch authorities have alleged the pension fund used sophisticated contracts with counterparties to exploit its tax status for financial gain.

Dutch tax authorities first looked into HOOPP’s trades in response to a news story about “dividend stripping,” which involves buying shares for a short period before a dividend is declared and then selling them back to the original owner, according to court filings.

In 2013, HOOPP’s investment risk committee approved a derivative strategy that sought to capitalize on the fact that foreign pension funds in countries including Canada are entitled to have a 15-per-cent tax on dividend distributions refunded, which other institutions would have to pay, according to documents reviewed by the court.

HOOPP found that it could buy “foreign stocks prior to the payment of dividends,” then sell them to another entity – a bank – shortly after it received the dividend, according to the risk committee’s documents. In the meantime, it would hedge the risk of the stock price changing using an equity swap or call option. HOOPP would then keep “a small percentage of the dividend – a percentage less than the withholding tax, and the remaining dividend amount is paid to the other entity."

HOOPP purchased and sold the shares “over the counter” through brokers, and argued there was no contractual link between its share purchases and the price return swaps it entered into with banks, so the transactions were not “circular,” according to court filings.

But the tax authorities found that HOOPP correspondence showed the pension fund was communicating with various banks, agreeing on “price return swaps” at the time it bought the shares. Those contracts were settled after the record date when HOOPP became eligible to receive the tax-free dividends.

“With this strategy, the interested party wanted to make use of its dividend withholding tax refund position,” a translation of the court ruling said, in reference to HOOPP.

HOOPP’s counterparty bank, “which has retained its interest in the shares by means of the price return swap, is on balance compensated an amount corresponding to the amount of the net dividend to be distributed, plus part of the dividend tax withheld from the dividend distribution,” the tax court said. 

I reached out to Scott White at HOOPP to get more information and he sent me the official response they sent to the Globe and Mail:

HOOPP is disappointed by this tax court ruling and will appeal the decision. As the issue is still before the courts, HOOPP cannot comment any further on this matter. This initial ruling on events that occurred between 2013 and 2018 will have no impact on HOOPP’s ability to pay pensions to our members today or in the future.  

And remember back in October 2025, HOOPP issued this statement on its website:

HOOPP firmly rejects allegations from Dutch authorities

HOOPP has been informed that it will be summoned in the Netherlands regarding a dispute over dividend withholding tax refunds on Dutch shares it purchased beginning in 2013 and ending in 2018. HOOPP is surprised and disappointed by this decision and will vigorously defend itself against these allegations.

HOOPP has been cooperating with the Dutch Tax Authority in the Netherlands for many years on this issue. HOOPP is confident that it was the beneficial owner of the shares and therefore entitled to the tax refunds. This issue is about a dispute over the interpretation of a discrete Dutch tax provision, which HOOPP believes should be solely adjudicated by a tax court.

These allegations will have no impact on HOOPP’s ability to pay pensions to our members today or in the future. 

I had discussed this case on my blog here when it first broke out in 2019.

Alright, let me get to into this and share my thoughts.

First, the case is clearly being appealed as HOOPP feels it did not violate Dutch tax laws so I understand why they cannot comment further on this matter.

Now, let's say HOOPP loses the case and is ordered to pay $346 million as well as the $65 million in interest charges to Dutch tax authorities. Will this hamper its ability to pay pensions.

Of course not, HOOPP manages $123 billion as at December 30th 2024 so it can easily pay $411 million and have no liquidity issues whatsoever to pay current and future pensions.

The hit will be felt at the investment level however as it will show up as a loss from a strategy they undertook.

Is this the same thing as the AIMCo vol blowup?

No, the AIMCo vol blowup led to a loss of $2.1 billion which represented a more serious amount relative to total assets at the time and was clearly an investment risk problem.

The only similarity is if HOOPP loses the case, its members will eat the loss.

HOOPP undertook at “dividend stripping” strategy in the Netherlands which involved buying shares for a short period before a dividend is declared and then selling them back to the original owner via swaps, according to court filings. 

Dutch tax authorities are claiming the strategy was designed to take advantage of HOOPP’s favourable tax status in the Netherlands and that HOOPP used sophisticated contracts with counterparties to exploit its tax status for financial gain.

HOOPP is disputing this, so this isn't a case involving excessive investment risk, but it is a case that involves legal, operational and reputation risk.

To be frank, I'm surprised HOOPP engaged in this strategy in the Netherlands and that the investment committee and Board approved it because of these risks but Jim Keohane (then CEO), David Long and Jeff Wendling (then co-CIOs) obviously made a persuasive case. 

In fact, David Long was the SVP Asset Liability Matching and Derivatives back then and widely recognized as a top derivatives expert along with Jim Keohane so they understood this strategy and all its risks very well. 

Importantly, there is no way they didn't due their due diligence and consult legal firms in the Netherlands to make sure it's a) legal and b) discuss the strategy with their counterparts to make sure it's legal.

This is why HOOPP is contesting the court's decision and it's within its rights to do so but obviously they overestimated the legalities of this strategy and underestimated the blowback.

Again, in my opinion, not worth the reputation risk nor do I consider this "real alpha" in nay sense and if I was sitting on that investment committee I would have voted against this strategy even if it was considered legal by outside experts. 

What do I mean by real alpha? HOOPP engages in many absolute return strategies internally, mostly arbitrage strategies going long/ short securities and investing in external hedge funds where they cannot replicate alpha internally.

Dividend stripping isn't what I consider alpha,  even if you're using swaps to make it look very sophisticated, it's totally bogus in my opinion (again, my opinion).

And that begs the question whether those gains were used to claim "value add over their benchmark" to justify paying bonuses to senior managers.

Those bonuses were paid and if HOOPP loses the case, members will eat the loss and it will not make a material impact on total fund assets but it might make one on investment performance the year that loss is claimed if they lose the case.

It's not Jim Keohane, David Long or Jeff Wendling who are going to pay the price even though the strategy fell under their watch, they're long gone and collected their bonuses. 

Again, HOOPP might win the appeal and this might all turn out to be a mute point but I'm sharing with you my insights and the way I see it from the outside, this strategy might have looked like easy money back then, it turned out to be a major headache for the organization, potentially costing it reputation damage.

And I strongly doubt any other Maple 8 engaged in it exactly for the reasons I'm citing above, not worth it, wouldn't be approved by their Board and certainly not considered real alpha. 

The vol selling AIMCo was doing others were doing as well, including HOOPP, but they managed risk a lot tighter and didn't lose anywhere near as much.

I've seen plenty of sophisticated strategies blow up at La Caisse and PSP during my time there, a lot of smart people doing stupid things. 

It happens, people use the pension fund's balance sheet to gamble and sometimes they win big and sometimes they lose huge.

Also worth noting that Morgan Stanley settled its dividend stripping case with Dutch tax authorities last year after a decade-long dispute:

A decade-long court case between US bank Morgan Stanley and the Dutch tax authorities has been settled, ‘Follow the Money’ has discovered. Jan van de Streek, Professor of Tax Law, spoke to the news platform: ‘I'm surprised Morgan Stanley paid everything.’

For more than a decade, US bank Morgan Stanley has been embroiled in a lawsuit with the Dutch tax authorities over dividend stripping. Investigative journalism platform Follow the Money recently discovered that the case has been settled. The bank must pay the tax authorities a sum of almost 200 million euros. ‘I am surprised that Morgan Stanley has paid everything, both the claimed tax and interest,’ says Van de Streek. ‘I am curious what the bank got back in return for that settlement.’

According to the professor, rising interest rates may have played a role: ‘That tax rate was 7.5% in 2024. Suppose the bank still lost the case, that interest rate could have reached enormous proportions.' The settlement does not relieve the US bank of all litigation in the Netherlands. A criminal case is still pending with the Public Prosecution Service. According to Van de Streek, there is a chance that the prosecution will drop the case: ‘The fact that Morgan Stanley has resolved the case fiscally is positive. The prosecution will undoubtedly take that into account when considering whether or not to pursue the criminal case.'

In November of last year, Bloomberg reported that Morgan Stanley was fined €101 million (US$117 million) by the Dutch public prosecutor over dividend tax evasion and deliberately filing incorrect tax returns:

The fines for carrying out Cum-Cum trades were imposed on two Morgan Stanley companies in London and Amsterdam, according to a statement by the Dutch public prosecution service on Thursday. Cum-Cum trades allowed foreign owners of stocks to avoid withholding tax by lending the securities during dividend season to an exempt entity such as a local bank. 

Morgan Stanley “through a specially designed structure, ensured that parties who were not entitled to a dividend tax offset or refund could still wrongly benefit from a portion of the offset dividend tax,” the prosecutor said.  

The fine is in addition to the tax due that Morgan Stanley paid to Dutch authorities at the end of 2024.

Under Dutch law, domestic dividend recipients are entitled to the right to offset dividend tax if they are the ultimate beneficiaries of those dividends. The prosecution service said that Morgan Stanley established a Dutch company that acquired shares between 2007 and 2012, but held them only briefly around dividend dates, receiving a total of €830 million during these short-term holding periods.

The firm offset the dividend tax withheld on these shares, totalling €124 million, in five corporate income tax returns between 2009 and 2013, it said.

The bank is “pleased to have resolved this historical matter, which related to corporate tax returns filed in the Netherlands over 12 years ago,” a Morgan Stanley spokesperson said. The bank had previously rejected the allegations.

It's not exactly the same case or structure which is why Morgan Stanley settled its case but it didn't look good.

Anyway, I hope HOOPP wins this case but I must admit, from the outside, it doesn't look good. 

Keep in mind, unlike other Maple 8 funds, HOOPP is a private trust and doesn't have to disclose anywhere near as much as its peers, it discloses a lot and is very transparent but I doubt we will get a detailed assessment of what happened here if the Dutch court of appeals doesn't overturn the verdict. 

Lastly, and most importantly, HOOPP is doing great, it's delivering alpha and beta and didn't really need to engage in this strategy and it has more than enough assets to pay current and future pensions no matter what happens in this case. 

It's new CEO Annesley Wallace has a clear strategy and a vision and she had nothing to do with this strategy even if she inherits any potential fallout.  

Below, in this episode, the Compliance Officers Playbook podcast unpacks the major enforcement action taken against Morgan Stanley after Dutch authorities uncovered its role in coordinated tax evasion schemes. Following extensive audits and criminal investigations, regulators issued a €101 million fine—the maximum possible—after determining that the firm used complex trading and derivative strategies to exploit dividend withholding tax rules.

Again, this was illegal which was why Morgan Stanley settled its case, not the same as the HOOPP case. Just sharing this to show you why these strategies are not worth the operational and reputation risks. 

A little over a month ago, James Bradshaw of the Globe and Mail reported that CPPIB’s private-equity head steps into uncertain market aiming to sharpen portfolio’s focus:

It wasn’t supposed to be Caitlin Gubbels’s job to make big changes when she took charge of the $146-billion private-equity business at Canada’s largest pension fund manager. But the market for deals is changing in ways that make it impossible to stand still.

In October last year, Canada Pension Plan Investment Board promoted Ms. Gubbels to global head of private equity at a moment when that industry’s deals, and the outsized returns they were known for, had largely dried up.

A frenzied period of deal-making in 2020 and 2021 led to a “lack of discipline” on the part of some investors, she recalled in an interview. That frothy market soon collided with a quick rise in interest rates, which put pressure on company valuations and made it harder to recycle cash that was tied up in investments. As a result, the performance of private-equity portfolios has largely been “treading water” for five years.

Then, U.S. President Donald Trump’s aggressive campaign to raise tariffs plunged markets into uncertainty just as two major trends that could reshape the private equity sector picked up steam. Artificial-intelligence tools emerged that could decide which companies in investors’ portfolios are winners or losers, and retail investors gained increasing access to private markets in a development that could pour a flood of new capital into the system.

“If 2025 has taught us anything, it’s that nothing is certain any more,” Ms. Gubbels said. For private-equity investors, “the market has been tricky and it’s getting trickier.”

Ms. Gubbels has experience stepping into a new role during market turmoil: She started her career in investment banking at Canadian Imperial Bank of Commerce in 2007, on the cusp of a global financial crisis. “Great timing, nailed the timing,” she said, dryly.

Less than four years later, eager to switch to the “buy-side” of the investing world, she joined CPPIB. Within a decade she was leading the fund-investing side of the organization’s private-equity arm.

Since becoming the unit’s global head, she has worked to sharpen the focus of CPPIB’s roster of investments and partnerships, aiming to make sure it doesn’t get caught out by a changing market, and to boost its returns back to a level that private-equity investors expect.

CPPIB’s private-equity portfolio, which makes up about one-fifth of its $777.5-billion in assets, earned an 8.7-per-cent return last fiscal year, bringing its five-year average to 14.7 per cent annually. Even that five-year performance missed CPPIB’s internal benchmark of 20 per cent, as the public stock portfolios that private equity is measured against outperformed.

From the outset, Ms. Gubbels asked her team to “look in the mirror” and question whether they were focusing CPPIB’s capital on deals and partnerships where the fund has a competitive advantage, taking a more top-down view instead of evaluating each transaction on its own terms.

CPPIB commits about half the money in its private-equity portfolio to third-party funds, and co-invests the other half in deals led by a few dozen core private-equity partners, including about 35 firms focused on buyouts in the U.S. and Europe.

“I did ask the team: Really map the market. Let’s make sure that we are in the right number of partners for our strategy,” Ms. Gubbels said.

As the private-equity market has shifted, so have the internal discussions that CPPIB convenes to assess potential deals and construct its portfolio.

For one thing, “you can’t get through an investment committee meeting without talking about AI, nor should you,” she said.

Her team is working on developing new screening tools to flag companies in sectors that are likely to be disrupted, so CPPIB can make “no-regrets decisions to pass” on some deals, she said. And they hope AI will help the fund see which of its investment partners are doing lots of deals, or who need liquidity, so they can seize investment opportunities more quickly.

They have also taken a hard look at companies in CPPIB’s existing portfolio, especially software providers, to gauge which ones could benefit from AI and which might lose out. In the past, private-equity investors have been stung when the valuations attached to companies in certain sectors suddenly reset at lower levels, making it near impossible to sell at the prices they anticipated.

So far, however, “I don’t see distress and I don’t see friction, necessarily, from AI,” she said.

But with political tensions over trade and social-media posts that can change policy, investment committee discussions are also spending more time on “stroke-of-pen risk, regulatory risk, disruption risk,” she added.

The recent boom in the secondaries market – where investors buy and sell stakes in private-equity funds – could also challenge the dominance of big institutional funds and change the way they invest. CPPIB has been a regular participant in secondaries deals for years, long before they entered the mainstream. But new funds tailored to wealthy retail investors could ramp up competition for deals and create a more fluid market.

“I do believe institutional capital is still a very compelling proposition to the private-equity market. It is sticky, it is consistent and it has been through cycle,” Ms. Gubbels said. “And we have yet to see how retail performs through cycle.”

For now, the private-equity market is “still digesting that peak” from five years ago, she said.

“I don’t think there’s a silver bullet to the 2020, 2021 vintages,” she added. “It’s just going to take a long time to work through.”

As that happens, Ms. Gubbels expects private equity will bounce back and is confident that new investments made today will pay off. “I would say I’m actually quite optimistic,” she said.

Two weeks ago, Layan Odeh and Paula Sambo of Bloomberg reported Canadian pensions that oversee US$1.2 trillion revamp to private equity model:

For the likes of Blackstone Inc. and KKR & Co., a multibillion-dollar opportunity beckons from Canada.

Some of the country’s biggest pension funds are looking to scale back their direct private equity bets, according to people familiar with the matter. Instead, they’re moving to invest more through established buyout giants, or partner on deals with other big investors such as endowments and sovereign wealth funds.

Already, the Canada Pension Plan Investment Board, the country’s largest such money pool, has shifted some private equity holdings into a separate group and is considering taking on more passive co-investments, according to public records and some of the people familiar with the matter. The Ontario Municipal Employees Retirement System overhauled its private equity unit, bringing in a new external head, halting direct buyouts in Europe and cutting a team focused on the asset class in Asia.

In interviews earlier this year, the chief executive officers of the Ontario Teachers’ Pension Plan and Caisse de Dépôt et Placement du Québec each said they’re trying to control risk by leaning more on partners and third-party firms to help them manage private investments.

Altogether, the large Canadian pension funds known as the Maple Eight have amassed more than $400 billion of private equity holdings, a sum that’s equivalent to roughly a fifth of their assets. But with deal activity remaining muted, it has become harder for some pension managers to justify the heightened risks and extra resources needed to manage controlling stakes in companies, according to people familiar with the industry.

“Private equity investing is resource intensive and very, very complex,” said David Scopelliti, the global head of private equity and private credit at Mercer, one of the world’s largest outsourced asset managers.

Omers, a $141 billion fund that’s long been the most active in direct investing, made notable changes, including launching a global funds strategy and shutting its European direct-investment arm after some bets struggled. It has completed only one direct buyout — the acquisition of IT-services firm Integris — in the past two years, according to its website.

The pensions may be confronting the reality that private equity’s golden age has passed, according to Ira Gluskin, former chair of the University of Toronto Asset Management Corp. Many funds built sizable internal buyout teams during a period defined by cheap leverage, soaring valuations and easier exits — conditions that no longer exist.

“You cannot do the same thing every year and hope to be successful in this very competitive environment,” Gluskin said in an interview.

Once seen as a path to superior performance, direct ownership has, at times, added operational headaches for Canada’s pension managers, according to people familiar with the matter. Moreover, it’s tough for these public entities to compete with giant alternative investment firms for talent.

Still, pension firms that have been scaling back on direct ownership have stressed that they’re not abandoning the strategy. It’s a matter of being more selective about what they do and where they do it, rather than ditching the direct model altogether.

This story is based on interviews with more than 20 people familiar with the industry, including Canadian pension plan officials and fund managers. Some of them asked not to be identified discussing matters that are sensitive.

Omers said it’s still committed to doing buyouts in North America, including having controlling stakes in firms. The manager is expanding its private equity funds program to complement that and help with diversification, Chief Investment Officer Ralph Berg said in a statement.

La Caisse said partnerships are an established part of its strategy, but that it remains primarily a direct investor in private equity.

Ontario Teachers’ said direct investments represent about 75 per cent of its private equity capital today, with the other 25 per cent in funds run by outside firms. The pension plan believes it can get the best results by doing both, according to Dale Burgess, executive managing director of equities.

“Our approach will continue to include investing directly in businesses — particularly in areas where we have a deep track record and in-house capabilities — as well as investing strategically with leading general partners that can deliver performance, unique insights, and co-investment opportunities,” Burgess said in a statement.

Canada Pension Plan Investment Board declined to comment.

Ontario Teachers’ pioneered direct investing by major Canadian pensions more than 30 years ago. For a long time, in fact, it controlled one of the country’s most beloved businesses — the Toronto Maple Leafs hockey club — and made a fortune when it sold.

By the mid-2000s, several of Canada’s big pension plans had evolved into global private equity dealmakers, competing against buyout firms to avoid outside fees and exert more control over portfolio companies. In one notable example a decade ago, CPPIB went alone in buying lender Antares Capital from General Electric Co. in a US$12 billion deal, beating other suitors including Apollo Global Management Inc. and Guggenheim.

When interest rates started going up in 2022, private equity returns sagged and liquidity dried up. The United States Federal Reserve’s recent rate cuts are fueling hopes of a deal comeback, but Apollo’s Scott Kleinman anticipates that private equity firms will keep selling their assets at a slower pace for the next few years.

And PwC said this month that “deal volume remains anemic,” though U.S.-based private equity firms are getting some larger transactions done.

For Canada’s pensions, the sluggish environment means some portfolio companies bought with cheap money are now harder to offload at desired valuations. Earlier this year, Omers’ plans to sell Premise Health Holding Corp., a U.S. health care provider, faltered when the pension manager failed to fetch a price that met its expectations, some of the people said.

In 2012, Omers bought U.K.-based Lifeways Community Care, which supports adults with disabilities, with the goal of scaling the business. But instead, the company stumbled and the Canadian pension transferred ownership to lenders in 2023.

Omers also had to write down its US$325 million investment in Northvolt AB, which filed for bankruptcy protection in the U.S. last year. Other pension plans, such as La Caisse, also took losses on their investments in the Swedish battery-maker.

Revamping buyouts

Even so, there are some bright spots — including signals that deals are starting to move. CBI Health, one of Omers’ longstanding portfolio companies, agreed to sell its home-care business to Extendicare Inc. this month. Ontario Teachers’ has struck deals to sell its stakes in at least three companies since the start of the year, according to its website. In July, the pension said it’s buying a Spanish chain of dental clinics.

And earlier this month, CPPIB committed US$600 million to invest in Boats Group alongside General Atlantic, with both the pension and the private equity firm controlling the company.

Meanwhile, the pension funds are restructuring for the future. Ontario Teachers’ shuffled its private equity team with at least five senior managers leaving or stepping down from their roles, including the head of the unit, Romeo Leemrijse. During its search for a replacement, the firm spoke with senior executives from other pension managers, according to people familiar with the matter, before ultimately promoting Burgess, an internal candidate formerly focused on infrastructure.

CPP Investment Board, for its part, moved some of its holdings into what it calls the “integrated strategies group,” a mix of businesses the fund has owned for a while and that don’t easily fit into the current strategies of its investment departments. The group includes two reinsurance companies and a large minority stake in agribusiness Bunge Global SA.

The pension is also considering doing more co-investing — transferring some of the due diligence burden to its partners — as well as boosting its number of fund investments, people familiar with the matter said. Those have delivered better returns than buying controlling stakes, even accounting for extra fees, after the pandemic and elevated rates weighed down the performance of some of its portfolio companies.

Omers is cutting its entire Asia direct buyout team as of Dec. 31. It has put cash into Thoma Bravo’s buyout strategy and is in talks to collaborate with several fund managers, including Warburg Pincus, according to people familiar with the matter.

Some of the changes enable pension funds “to access more deal flow, and really leverage the deeper relationships and networks, maybe even some specialized expertise,” Mercer’s Scopelliti said.

Even with all of these staff and strategy overhauls, private equity remains “a very core and strategic asset class” for Canada’s pensions, according to Sunaina Sinha Haldea, global head of private capital advisory at Raymond James Financial Inc. “As the markets shift they’re willing to be flexible and to shift back and forth with them.”

For Gluskin, the former University of Toronto Asset Management chair, the pension funds’ change in approach isn’t a mystery or even a failure. It’s a rational response to a new investing environment.

Their earlier model was built for a different era, and the game has changed.

The private equity game has indeed changed, that's for sure.

I remember setting up private equity at PSP Investments with Derek Murphy back in 2004-05, things have changed drastically in 20 years.

There is a lot more competition nowadays from GPs and LPs, financial engineering is all but dead, but one thing remains the same, private equity is very much a relationship business where you need to partner up with top funds to gain access to solid co-investing opportunities.

In other words, at large shops like CPP Investments and PSP Investments, it's all about fund investing and co-investing to reduce fee drag and maintain a healthy allocation to the asset class as assets grow.

And that's pretty much how it is at the rest of the Maple 8, some did purely direct deals years ago, OMERS still does some but that form of direct investing is becoming rare, it's next to impossible to compete with top funds with access to top talent and top deals.

I can pretty much assure you that all the Maple 8 funds are in deep reflection mode when it comes to private equity.

Publicly they will say they remain committed to the asset class but privately there are a lot of discussions going on in the background and it doesn't help that public equity markets keep roaring higher and higher (creating a huge benchmark issue).

In fact, there are so many issues in private equity that the only good news is the industry is keenly aware of them and working through them, slowly but surely.

Caitlin Gubbels who heads the largest private equity portfolio among global institutions discusses excesses of vintage year 2021-22 and how the industry is working through those issues.

Vintage year diversification remains the most important risk tool of any private equity portfolio, you don't want to get overexposed to terrible vintage years, leaving you little choice but to use secondaries to sell fund stakes at a discount.

The rise of secondaries is unquestionable a good thing but vintage years 2021-22 were awful, too much silliness going on, much like Canadians listening to Bank of Canada Governor Tiff Macklem during the pandemic saying "go out and buy a house, rates will stay ultra low for a very long time" (he later regretted saying this).

Of course, rates normalized since pandemic lows in March 2020 and the private equity industry was caught with its pants down (as were many Canadians who took out a huge mortgage 5 years ago).

The days of financial engineering are long gone, value creation is what it's all about and AI is being used to enhance value and mitigate risks, but it's also creating more competition in some industries (like software) and that too is wreaking havoc in private equity.

Moreover, talking to some CIOs like OTPP's Gillian Brown, there is definitely a structural shift going on in private equity and if you're not ahead of it, you will feel the pain.

The good news is rates have come down, M&A picked up nicely in 2025, more deals are being announced but the deal-making environment remains muted compared to the past.

What else worries me? Inflation from tariffs has yet to show us in any significant way but if it does, watch out, rates are headed back up, it will hurt many of the smaller funds in private equity struggling to keep up (the big funds will put money to work to seize opportunities as they arise).

Private equity is also ramping up fundraising but with exits remaining muted, investors (LPs) are increasingly demanding for returns and not signing on blindly to continuation vehicles.

In short, private equity remains messy and tricky to use Caitlin Gubbels' words. 

It remains an important asset class which offers better alignment of interests over the long run and better governance and sustainability but it's far from easy, the fat years in PE are over.

I'm expecting a major shakeout will take place over the next three years, many funds will disappear.

On that cheery note, let me wrap this up.

Below, Collin Roche, Co-CEO of GTCR, the $50B private equity powerhouse, joined Bloomberg Open Interest to talk about where dealmaking goes next, and why discipline is back in vogue.

Also, last week, Altimeter Capital founder and CEO Brad Gerstner joined CNBC's "Halftime Report" to debate whether AI will be the death of software and how he's trading the sector. Great discussions, listen to their comments.