Funds boost alternatives, yet most still fail to earn enough to preserve purchasing power
Canadian endowments and foundations are leaning more heavily into private markets, even as many continue to struggle to generate returns that keep pace with inflation, spending demands, and operating costs.
Research conducted by CFA Societies Canada and Mercer Canada reveals a pronounced shift into private markets across the sector as even the smallest respondents (those overseeing under $100 million) now direct more than 14% of their portfolios to private strategies, mostly real assets such as real estate. Private equity, while still emerging for this group, is gaining momentum.
The survey draws on responses from 39 organizations across the country, with participants fairly evenly distributed by asset size and slightly more representation from education-focused institutions. At the time of the survey, there was a large amount of anxiety surrounding the US administration’s trade policies and their potential impact on the Canadian economy, reflecting trends from Mercer’s Global Endowment and Foundation Survey, which identified market volatility (83%) and domestic/international politics (82%) as the two biggest risks organizations are facing.
The latest research found that larger organizations, managing more than $500 million, push substantially deeper into alternatives and, on average, they hold about 38% in private assets and hedge funds, trimming back fixed income exposure to make room. These larger funds also exhibit significantly less home-country bias compared with their smaller peers.
Education and community foundations, typically the bigger pools in the dataset, tend to allocate more aggressively to private markets. Hospital foundations, by contrast, lean more toward defensive fixed income positions.
The five-year period ending December 31, 2024, included intense market swings but ultimately delivered strong nominal gains.
With inflation averaging 3.4% and many organizations working with a 5% disbursement quota and roughly 0.75% in costs, institutions needed a 9.15% annual return just to maintain their real spending power. However, the median five-year result came in at 7.6%, with the top quartile at 8.4% and the bottom quartile at 6.7%. In short: none met the inflation-adjusted break-even threshold.
Size proved to be a major differentiator. The lowest-performing large funds delivered results comparable to the highest-performing small funds, highlighting how scale can influence access to strategies, diversification opportunities, and ultimately, performance.
When comparing the asset allocations of top- and bottom-quartile performers, lower-returning funds held heavier positions in defensive fixed income, while higher-returning funds leaned into equities and private markets. This gap in diversification played a defining role in performance over the past half-decade.
