Only two years into the top investment job at OMERS, Ralph Berg has made his mark, dramatically re-engineering the investment programs, adjusting the geographical focus and getting ready to buy as M&A markets open up. Amanda White reports.

Ralph Berg, chief investment officer at OMERS for nearly two years, brings a fresh perspective to pension fund management with a history and work pedigree different to what you might expect from a Canadian fund investment boss. He was born in the United States to German parents and grew up in Argentina, and while he works for a Canadian fund he lives in London. An economist and lawyer by training, he describes himself as “essentially an M&A banker”. And he’s used that vast and varied experience to revamp the C$138.2 billion ($97.2 billion) fund’s approach to investing.

After nearly 20 years in investment banking, at Deutsche Bank and then Credit Suisse, in 2013 he moved to Borealis, OMERS’ infrastructure arm, to run infrastructure globally and then head the capital markets team.

In the relatively short time he has been CIO, Berg has rejigged the operating model from a “loose federation of very independent platforms” to a consolidated group of six programs.

“There were loosely defined mandates and guidelines for risk and asset classes which caused duplications and triplications,” Berg says of the investment operating model in an interview with Top1000funds.com.

“As CIO if I wanted to take the balance sheet to a desired state – for example 25 per cent in equities – I needed to flick 17 switches across global equities, quant strategies, Asian equities, multi asset; I had credit in seven different programs. There was no total portfolio view or management team… and we had an excessive number of programs.”

Berg’s stamp

Now the separate programs have been consolidated into six streams; three public and three in private investments.

OMERS created a single equities program of managed from New York, with the research and portfolio management in separate functions.

There is also now only one global credit group which manages any style of credit including investment grade, leveraged finance, high yield, private credit, external private credit and structured credit. The majority of the 27-people team are in Toronto but there are also people on the ground in NYC and Singapore.

The third public investments group is the global multi asset strategies group whose activities include an absolute return quant approach which runs very efficiently.

“It is efficient as a vehicle and very swift,” Berg says. “If I want to make big sudden changes in the balance sheet that’s the place.”

Under Berg a new total portfolio management unit has been formed, which includes the trading team and a newly created capital allocation team, that advises Berg on the best asset mix to achieve the desired returns.

That team also includes portfolio analytics (that explores for example the role technology, AI and data can play) and a strategy team to support the total portfolio management team and the CIO’s office.

The dominance of unlisted assets

OMERS is a very mature fund, crossing the Rubicon of paying more than it receives about three years ago. This naturally means the investment team needs to be especially careful with cash.

“We have to live off the capital base of what we have, and protect what we have,” Berg says.

It’s somewhat of an anomaly that a fund which has liabilities greater than its assets, putting liquidity risk front and centre, would have so much invested in unlisted assets. Now about 55 per cent of the fund is invested in infrastructure, real estate and private equity (PE), and a very strong and long heritage in infrastructure and real estate underpins the fund.

“We have one of the top 10 players in infra globally, I would argue we have the best of the directs in infrastructure, with the very big advantage of being early in that space,” Berg says.

The fund has been invested in infrastructure for 18 years. What started small as a sandbox experimental exercise, turned into a symbiotic relationship between the fund and the social infrastructure needs of the municipalities of its membership. OMERS would build the hospital and then lease it back to the municipality agreeing to a fixed payment.

“This would deliver a very high-quality asset with low risk and volatility, and this became the early model of Borealis,” Berg says. “It was a naturally-aligned client.”

That model continued to thrive and then in 2003 OMERS made its first large scale infrastructure investment, allocating C$1 billion in a power plant in Ontario buying it from British Energy, a forced seller.

“That was the step where we stopped doing [small deals] and moved to very large infrastructure projects,” he says. “Because of the scale it is much more efficient to manage those assets, so the implications for the portfolio was very positive.”

A gas network in the UK became its first international investment in 2003 and expansion followed with offices in London, New York and Sydney. Today it owns 33 infrastructure assets with C$36 billion in AUM, or 23 per cent of the total fund. Each asset is about C$1 billion so the investments are larger and more efficient, with no individual market more than 35 per cent of the infrastructure portfolio.

Oxford Properties is the OMERS real estate business with more than 65 years of investment experience and a focus on Canada, US, UK, Australia, France and Germany.

“That’s been a very stable and very successful business for us with a strong component of cash generation which is a natural fit for the pension plan,” he says. “The fundamentals we like in real estate and infrastructure are the long-term nature – predictable returns, low risk, and the return that comes in the form of cash.”

Private equity is the final piece of the puzzle with investments dominated by the buyout program. In September last year, after analysing performance and deal flow, Berg decided to switch to fund investing in Asia and Europe and to focus on buyouts in North America.

“I came to the view based on data and performance we don’t have the scale to afford the quality origination and asset management required to efficiently do control deals in Asia or Europe,” he says. “We decided to focus on our buyout efforts in North America.” That group employs around 65 people across New York and Toronto.

The fund also recently formed a new external funds management group within private equity, called private capital headed by Michael Block. This is where the historical group of OMERS Ventures, which had some success in financing pharma in particular, and a legacy portfolio in green tech, will now be housed. Through this new group it will continue to invest in life sciences and venture capital and invest with external partners in funds and co-invest.

Future opportunities

While the fund is heavily invested in private markets, a one balance sheet approach which focuses on three things: returns (performance), risk (volatility), and liquidity  is front and centre for Berg.

He meets regularly with a group made up of the six business heads plus the head of risk and head of total portfolio management to focus on funding, capital allocation and risk.

For many years the returns from the fund’s unlisted assets provided a predictable cash return to derisk the public markets. OMERS, like many, has taken a hit with the repricing of assets but Berg believes the “lion’s share of the adjustment has taken place”.

“We are starting to see green shoots in the M&A market, investor interest in auctions, and bids at fuller multiples,” he says.

“Financial markets and the banking system is in great health and the lending market remains extremely supportive. One area we have been successful in the last 18 months is in refinancing debt in investee entities in PE and infra, which allows very immediate value creation. The credit market has not seen a lot of primary supply, and we have not seen a lot of deals. We are starting to see LBO [leveraged buyout] activity pick up again. I think we have gone through the worst. Could I say the adjustment is completed, no, because the last mile in the fight towards reducing inflation is always the hardest one.”

While in recent history central banks have been synchronised, now different growth and jobs levels in different countries means a different approach to interest rates, with US the standout, Berg says.

“It is our expectation the US will go from strength to strength in the near to medium term while Europe, Canada and the UK will lag,” he says.

The portfolio has been adjusted geographically to reflect those views with the US about 53 per cent of the portfolio, followed by Canada (19 per cent), Europe (17 per cent), Australia,  Asia and the rest of the world (11 per cent).

“Asia and Australia are at the lowest levels. We think there will be great opportunities to add again in Asia and Europe and we are ready for that. There is no doubt in the next couple of years as M&A markets open up it will be a buyer’s market.”

 

Investors have plenty of reasons to be bullish about China’s financial markets in 2025, according to one of the country’s top economists, as tech stocks continue to rally and expectations grow that the central government will soon shift to a looser macroeconomic policy stance. 

The Hang Seng tech index, which tracks the 30 largest tech companies listed in Hong Kong, has gained 35 per cent since the beginning of the year while Nasdaq 100 dropped 2 per cent. This stellar run came after Chinese start-up DeepSeek stunned the world by unveiling how it trained an advanced AI model at a fraction of the cost of its US competitors.   

Yao Yang, who is professor and director at Peking University’s China Center for Economic Research, is hopeful the boom will spur IPOs and attract more investments into Chinese tech companies, which would be a welcome development for a sector dealing with waning levels of funding and strict regulation in recent years.  

“The high-tech sector is going to become quite vibrant this year or in the years to come,” Yao says in an interview with Top1000funds.com. While it is unlikely to become a growth engine for China’s economy like real estate, as tech would not employ nearly as many people, Yao says it is still “very investible”.

“Before 2018, we were not talking about the seven tech companies in the US, we were talking about the three in China,” he says. This was the trio collectively known as BAT – Baidu, Alibaba and Tencent, and are companies touted to reap the most benefits from rising online consumption. 

For Chinese tech companies to return to these “glory days”, Yao says there needs to be more private investment and the government, which accounts for 90 per cent of the venture capital market in China, needs to step back. 

Yao’s comments come as Beijing is seemingly shifting to a more favourable attitude towards the private sector, after Chinese president Xi Jinping held a workshop with the nation’s prominent business leaders this month. He promised to “remove obstacles” to fairer market competition and make financing easier and less expensive for private companies, according to state media. 

There was a notable appearance at the workshop by Alibaba’s Jack Ma, who has retreated from public life, widely believed to be because of his criticism in 2020 that Chinese regulators and banks are stifling the financial markets. Other entrepreneurs attending included Xiaomi chief Lei Jun, DeepSeek founder Liang Wenfeng and Huawei founder Ren Zhengfei. 

“The workshop sends a strong signal [to support the private sector], but it’s just a signal,” Yao said. “To make a credible commitment, the government has to put money on the table. 

“It mentioned the local governments need to pay the debts owed to private enterprises – private enterprises have done a lot of projects for local governments, but they haven’t got paid.  

“But they [local governments] don’t have money. Central government has to bail them out – that’s real money. 

“[Local government debt is] a bigger problem in the Chinese economy, and that number is huge.” 

All eyes on the Two Sessions 

Yao is one of the most prolific academics and authors in China and has attended government forums to present socio-economic opinions to the Communist Party’s senior leadership, including Xi.  

While Yao is bullish on Chinese financial markets’ performance, he is neutral on the broader economy’s outlook. The upcoming annual meetings of the Chinese People’s Political Consultative Conference and National People’s Congress – dubbed the Two Sessions – is an important timestamp for investors.  

Yao, alongside many other economists, is hoping that the Two Sessions will allow for more aggressive stimulus to shore up demands in the economy. Yao believes monetary policies will be “progressive”, as the central government announced last December it will shift from a “prudent” to “appropriately loose” stance, but the fiscal policy support has come up short to date.  

“When people don’t have confidence, and you only use monetary policy to boost the economy, the effects are going to be quite small,” he says.  

“Then we’re going to end up with money circulating within the financial sector, so we have to use more aggressive fiscal policy to stimulate the economy.” 

Yao is critical of the stimulus package the Chinese government released in November last year, whose centrepiece was a debt-swap program aimed to reduce the “hidden debt” of local governments by 12 trillion yuan ($1.65 trillion) in the next three years. Hidden debts are off-balance-sheet debt related to Local Government Financing Vehicles (LGFVs) which invest on behalf of provinces and cities.  

The debt swap means local governments issue long-term bonds to repay their LGFV debts, Yao says; however, the repayment of long-term government bonds is mandatory. 

“This means the local governments’ repayment burden has been increased, not reduced,” he says. 

“We are talking about expanding China’s domestic demand, but what Ministry of Finance actually is doing has this contractionary merit. 

“I don’t understand. The only explanation is the Ministry of Finance really doesn’t have any economists who understand the macroeconomic consequence of debts,” he quips.  

US-China future 

The future of US-China trade relations is still uncertain in Yao’s view, but he believes it is too early to declare a trade war. This month, US President Donald Trump directed the US foreign investment committee to restrict investments from “foreign adversaries” like China in critical sectors such as technology, critical infrastructure, and healthcare. 

This came after the US slapped a 10 per cent tariff on Chinese goods and ended the de minimis exemption, which allowed for packages valued less than $800 to enter the US duty-free. China has responded with reciprocal tariffs on selected US-originated resources and machinery.  

Yao says the best agreement in his view is China would tolerate the tariff and import more agriculture products, while the US would agree to open up its market for investment and potentially call upon China to help with peace talks in Ukraine.  

The worst-case scenario is both sides fail to reach an agreement and the US might increase tariffs on certain Chinese products to 80 or even 100 per cent, he says.  

“The time window is between now and April, because in April the US is going to finish the 301 review on China,” he says. 

“In the Trump administration, probably Trump is the only China friend. If you look at the other guys, they’re all China hawks.  

“[If an agreement is reached] Trump then becomes kind of a peace president. I think this scenario is what he wants.” 

CalPERS CIO Stephen Gilmore talks the board through their role in setting the risk parameters behind a Total Portfolio Approach. The investment team hope the board will have selected its level of risk tolerance by November off which a TPA strategy can launch in July 2026.

Stephen Gilmore, chief investment officer of CalPERS, used a cooking analogy to describe the differences between the Total Portfolio Approach (TPA) that he hopes the pension fund’s board will introduce to manage the $533.4 billion portfolio and the strategic asset allocation (SAA) it currently relies on.

Speaking during the February board meeting, Gilmore explained how a SAA involves checking in every now and again (CalPERS adopts a SAA to determine its investment strategy every four years) and optimises at individual asset class levels. It is like cooking with a recipe book that relies on specific ingredients, he said.

In contrast, TPA is more continuous and optimises at the whole portfolio level for more efficiency. It is more innovative; the team are tasked with an objective and can use their discretion to provide “the same nutritious food.” Gilmore joined CalPERS in July last year from NZ$76.6 billion ($46.7 billion) New Zealand Superannuation Fund where he oversaw a TPA approach.

Under TPA, CalPERS’ board would set broad goals for managing the entire fund and give staff the task of implementing the strategy with one reference portfolio-type benchmark (under the current SAA, CalPERS has 11 different benchmarks) as well as a risk budget. Investments would be made according to whether they contribute to the desired outcome of the total fund rather than if they help fill out the asset class target allocation.

Measuring the Risk Appetite

An essential building block of the strategy involves ascertaining the board’s risk appetite. By this November, the investment team hope the board will have selected its level of risk tolerance off which it will be able to construct a portfolio to go live in July 2026.

CalPERS board would set its risk appetite by selecting a passive reference portfolio of stocks and bonds with active risk limits. The reference portfolio excludes alternative asset classes and alpha strategies such as private equity and private real estate.

The reference portfolio expresses risk tolerance and does not include the actual or target portfolio positions. The objective of an actual portfolio is to outperform the reference portfolio by using expertise, including additional asset classes and alpha-generating strategies. The actual portfolio will have illiquid assets, and won’t be mark to market so the observed tail risk will be lower.

In previous meetings, CalPERS’ board expressed its desire to increase risk to reap the benefits of an improved funded ratio and lower contribution rates – but not be exposed to large drawdowns. Board members agree they are focused on a total return objective rather than peer comparisons or relative returns. They are also open to innovation, more internal management, additional complexity and the higher costs that come with that.

Gilmore flagged the trade-off between shooting for additional returns and exposure to downside risk. “Tail risk increases as you increase the equity exposure,” he explained. The Board has expressed its concern that drawdowns and declines are not too long.

He also warned about the risk of macro- economic scenarios, particularly stagflation, on a future portfolio with the same level of risk as a typical 70:30 portfolio. Stagflation would impinge on equities (low growth) and bonds (high inflation) creating a potentially damaging scenario, he warned.

CalPERS board also need to explore their risk appetite regarding any deviation in portfolio returns from the discount rate. Gilmore flagged that with a 70:30 portfolio, returns can deviate from the discount rate over sometimes lengthy periods “It’s worth noting that 5-7- and 10 year rolling windows had incidents of negative returns,” stated his presentation.

A single benchmark

A new reference portfolio would be low cost and “simple” comprising easy-to-explain sources of risk and return and built using bonds and equities – the two most scalable and liquid asset classes.

Under its current SAA, CalPERS currently has 11 different benchmarks. Gilmore reflected that it is sometimes hard to see if the team have done a good job with so many benchmarks because they create different nuances. “With a reference portfolio it is much simpler; the question is: ‘Has management done better than a simple liquid portfolio,'” he said

Gilmore listed a hierarchy of risk in a TPA. The board’s overall risk appetite – and how much market risk they want – sits at the base of the pyramid. Next comes asset classes and their relevant weights, followed by manager selection. He explained that assets would be carefully matched to the level of risk the board is comfortable with.

Education of stakeholders outside the board meetings will continue with webinars.

 

New research investigates the systemic impacts of the large and growing superannuation industry in Australia highlighting two main concerns, that may differ from what you expect, and drawing conclusions for other evolving defined contributions systems. 

The Conexus Institute recently released a report titled Systemic impacts of ‘big super’. The full 85-page report can be found here, and shorter summary version here. The research investigates the implications for the broader Australian economy, financial markets and population of what has become a large superannuation (i.e. pension) system containing some very large funds.  

As at September 2024, assets in the Australian super industry stood at A$4.1t ($2.8 trillion), 150 per cent of GDP. The biggest fund (AustralianSuper) had A$355 ($246) billion in assets. The Australian system is also substantially (around 90 per cent) defined contribution (DC). In fact, it is the second largest DC system in the world behind the US (see table). 

Our broad-ranging report considered the benefits, risks and issues arising from big super. The overall conclusion is that Australia’s super system is a boon. It has facilitated the creation of a large pot of retirement savings that is being professionally managed, and brings benefits related to improved stewardship of capital and broadening out of available funding sources in the economy.   

We highlight two main concerns that may differ from you expect. The first is that super exposes members to economic and market risk, with a 70/30 growth/defensive mix being typical. While we consider this entirely appropriate as it boosts expected retirement outcomes, it is not without risk. Growth assets are likely, but not guaranteed, to deliver over the long run. Second, the operational infrastructure of the industry (administration, etc) appears underdeveloped. This is causing issues in areas like member servicing, and will require considerable effort, cost and time to upgrade. It also leaves the maturing system underprepared to develop and deliver a more personal tailoring in the retirement phase. 

Our report considers a variety of other issues, including the implications of significant FX exposure, service supplier concentration, vulnerability to scams, effects arising from herding of investment behaviour, super proving an unreliable source of funding for a sector, prospect of loss of confidence and trust, and effects arising from increasing fund size for governance, management, culture and ability to exert influence. We see scope for a range of impacts, but conclude it unlikely that any of these impacts reach the hurdle of ‘systemic’ in nature.  

We also consider whether super could be a source or magnifier of systemic stress in the Australian economy and/or financial system, including the potential for a system-wide liquidity squeeze or a run on a major fund. We argue that super is an unlikely source of systemic stress, and could either be a magnifier or dampener of stresses that emerge from other sources.  

Here we stand somewhat at odds with commentators – including the IMF – which has expressed concerns over exposure to liquidity risk in a DC system offering redemption-at-call while carrying investments in illiquid assets and currency hedges (which can give rise to margin calls).  In the remainder of this article, we unpack why we have much less elevated concerns over the issue, and reflect on the implications for pension system design.     

Our limited concern relates to the settings of the Australian system and how super funds have set their portfolios. First, in a DC pension system the members bear the risk. Super funds are also not permitted to leverage. There are no guarantees to force selling in response to poor market returns.  

Second, the experience is that the vast majority of members have remained inactive – even in the face of developments such as the Global Financial Crisis of 2008-9 (“GFC”) or COVID. The assets are preserved in the super system until retirement, prior to which members are only able to switch funds and investment options. Meanwhile, the system as a whole is in inflow, and is projected to remain so for around another decade. This greatly reduces the potential for significant outflows from the system overall, although the possibility of outflows from particular funds remains. 

Third, very few super funds hold more than 30 per cent in illiquid assets while currency hedges are about 16 per cent of assets for large super funds, which significantly limits the potential for a liquidity crisis. Consider what would happen if a fund with 30 per cent illiquid assets suffered an outflow of (say) 10 per cent of assets under management. The initial response would be to sell their liquid assets, resulting in the illiquid assets moving from 30 per cent to one-third (i.e. 30/90) weight. The result would be a modestly out-of-shape portfolio, while individual funds are not significant enough to disrupt markets. So no big issue. We run analysis that combines high illiquid asset exposure and currency hedges with fund outflows and market declines, and find it hard to build a plausible scenario that ends in disaster.  

Nevertheless, members of a fund in outflows may suffer some losses as a consequence of their fund being a forced seller of assets, and needing to tidy up an untidy portfolio in the fullness of time. But this is hardly a systemic event. Further, from a system perspective, those on the other side of the trades will benefit. 

Fourth, institutional settings provide further protection. The regulator requires funds to have detailed liquidity management processes and plans in place. If worse comes to worse, the regulator can suspend the requirement that a fund meets redemptions. And we feel confident that the authorities would take whatever action is needed if liquidity pressures in super amounted to a systemic threat.  

In sum, there are lots of gates to go through before super causes a liquidity event of systemic importance. Not impossible, but highly unlikely.            

How might super funds behave in an economic and market crisis? On one hand, they could magnify the stress by joining a pile-on to sell assets or withdrawing capital from some sectors. On the other hand, rebalancing activities and the opportunity to pick up cheap assets may encourage them to step up to the plate and provide funding where it is most needed. Indeed, this is how super behaved during the GFC. How members react to the crisis (i.e. switching activity) may also have effects. Whether super acts as a magnifier or dampener of system stress will depend on how the situation unfolds.    

The main message is that the specifics of both the pension system and the circumstances are important. In DC systems, the members bear the risk. Here pension funds act as a conduit to distribute the effects of systemic stress around the economy. Whether pension funds themselves exacerbate the situation depends on the system settings. In the Australian system, risks are limited by the fact that it is a partly closed system (at least in accumulation) in inflow with mainly inactive members, no leverage, exposure to illiquidity and derivatives being kept to manageable levels, and regulatory settings that help to keep everything in check. These features need not apply in other DC systems.  

In DB pension systems, the liabilities are typically well-defined undertakings with the sponsor bearing the risk. Dynamics such as the management of mark-to-market funding ratios and use of derivatives to manage exposures can be at play. The ‘crisis’ in the UK system during 2022 is a salutary example or how these features can have systemic implications. Leverage may also be used, which is a feature in the Canadian system. Political considerations may also loom large, with US public pension plans being a case in point. In some systems, the assets are concentrated within one major fund, e.g. Korea, Norway and Singapore.  

The bottom line is that the specific settings of a pension system matter for its potential to have systemic impacts that extend across the economy or markets. The key issues will differ from country to country. We see the Australia’s DC super system as overall beneficial and an unlikely propagator of system stress. We trust that its features may provide some useful lessons for other systems. 

*David Bell is executive director, and Geoff Warren is research fellow at The Conexus Institute, an independent think-tank philanthropically funded by Conexus Financial, publisher of Top1000funds.com 

Abu Dhabi-based sovereign wealth fund ADQ kicked off the new year forging two global investment partnerships, as the fund seeks to boost its influence in emerging markets by deploying capital in critical areas such as infrastructure and urban development.

The Gulf investor said on 12 February that it has signed a Memorandum of Understanding (MoU) with International Finance Corporation, the World Bank’s private finance unit, to explore co-investment opportunities in sectors such as agriculture and healthcare infrastructure in developing countries.

It came less than a week after it signed a separate MoU with Vietnam’s government-owned sovereign investor, State Capital Investment Corporation (SCIC), to together identify and invest in areas critical for Vietnam’s economic development.

ADQ was known as Abu Dhabi Developmental Holding Company (ADDH) when it was established in 2018 but rebranded to its current name in 2020. Consultancy, Global SWFs, estimates it has $249 billion in assets under management.

While it is a relatively young sovereign investor, it has had an outsized impact particularly in emerging market countries. It invested $35 billion in Egypt last February and acquired the rights to develop a prime coastal area, Ras El-Hekma. The Egyptian prime minister Mostafa Madbouli hailed it as the biggest foreign direct investment in the nation’s history.

The deal helped alleviate the foreign reserves crisis Egypt has been in since 2023 and paved the way for the nation to eventually secure a bigger $8 billion loan program from the International Monetary Fund in March 2024.

Elsewhere, ADQ also offered to shore up the Turkish economy, providing up to $8.5 billion of earthquake relief financing bonds after southern and central Turkey was struck by catastrophes in February 2023, as well as a $3 billion credit export facility for Turkish companies.

ADQ’s deal with SCIC this week marks its first partnership with a Southeast Asian state government entity, although it has already been a prolific venture capital investor in the region. It created an externally managed venture program in 2020, which aims to invest in Indian and Southeast Asian startups and attract them to set up shops in Abu Dhabi.

Trade between the United Arab Emirates and Vietnam reached $4.7 billion in 2023 and almost $4.5 billion in the first eight months of 2024, representing a 45 per cent surge year on year. Mohamed Hassan Alsuwaidi, ADQ managing director and group CEO said the deal with SCIC will strengthen bilateral ties.

New capital flows

According to a summary of a December board meeting last year, chair of ADQ Sheikh Tahnoon bin Zayed Al Nahyan – who also oversees Abu Dhabi Investment Authority and is the deputy ruler of Abu Dhabi – “emphasised ADQ’s pivotal role as a catalyst for Abu Dhabi’s economic growth and the expansion of international investment opportunities”.

ADQ currently has over 25 portfolio companies and operations across more than 130 countries. They are categorised into what the fund calls “economic clusters”, including priority sectors (energy and utilities; food and agriculture; healthcare and life sciences; and mobility and logistics) and emerging sectors (financial services; tourism, entertainment and real estate; and sustainable manufacturing).

The so-called growth market capital is experiencing an incredible boom, evidenced by the fact that nearly all new SWFs came from nations between the G7 and the more frontier markets, ADQ said in a research paper last December. ADQ itself is one of them.

But the important change is these investors are no longer satisfied with just the strategy of buying safe assets like US Treasury bonds which during periods of low interest rates yielded sub-optimal returns.

The fund sees itself as operating in a “polycentric world”, characterised by the fact that global capital flows are coming from and being directed to an increasingly diverse set of destinations.

“… capital from growth markets, which once went into government securities in developed markets, is now being directed toward investments much closer to home,” the paper said. “This use of development capital creates growth opportunities in those markets which in turn attracts global capital – whether it is portfolio flows or FDI flows.”

ADQ encouraged growth markets to further standardise their market and economic operations, such as by implementing a flexible exchange rate system, demonstrating trade openness and more closely monitoring investor sentiment.

“At the end of the day, capital flows to where it is treated well,” the paper said.

The muted IPO market has created a backlog of companies looking to make their public debut. In the current climate, a strategic and meaningful exit option for founders and CEOs can be M&A, so argue executives from Ontario Teachers’ Pension Plan’s venture capital allocation.

In a bid to support portfolio companies in Teachers’ Venture Growth (TGV) allocation the pension fund convened a discussion led by TVG’s John-Christian Bourque, Shannon Bailey and Yvonne Wassenaar to discuss how founders and CEOs can optimise their exit. Their key advise focused on building optionality early, establishing strategic relationships, and managing a successful sale process.

The 45-person team in TVG’s allocation manages around $7.5 billion. Initial direct investment range from $50-$250 million focused on late-stage venture and growth equity investments in cutting-edge technology companies. Recent investments include Fleet Space Technologies, Australia’s leading space exploration company, and Mintifi, India’s leading supply chain financing platform. Strategy is shaped beyond simply investing to partner with portfolio companies to create opportunities and achieve the best outcome together.

The trio discussed the importance of founders building optionality early.

“Creating optionality should start as your business nears $25 million ARR, not when challenges arise. Building optionality involves making your business adaptable and building trusted industry relationships to avoid a pressured sale down the road,” they said.

They also sounded the importance of start-ups investing in strategic relationships. Founders often hesitate to connect with bankers and private equity firms unless they have immediate plans for a sale. However, establishing these relationships early provides insights into market trends and better positions a business for an eventual exit.

Founders should also broaden their viewpoint.

“Understand how others view your industry and where they see value in your company’s approach. Engaging bankers can help you understand the valuation landscape, even if you’re not immediately considering a sale,” they said.

Allow ample time for the process

A successful sale takes time.  Preparing for this empowers entrepreneurs to manage expectations, ensure needed runway and avoid weakened negotiation positions.  This is critical given the challenging fund-raising market and regulatory environment.

They advised founders on the importance of scenario planning and developing potential exit scenarios. Always consider the opportunity cost of your decisions. Time is incredibly valuable, and cash is no longer free, they said, advising that founders understand the different pay outs to key shareholders at different valuation points.

Next the venture team advised firms on the importance of strategically engaging their team. This comprises minimizing the number of people who are involved in any process to avoid leaks and distraction. They advised on the importance of helping those involved understand the sale phases and guide them in balancing the process with running the business. If you might need to exit at a depressed valuation, consider a management carveout plan to ensure retention of essential executives through deal close.

Set the table for success

They said to remember that a deal is not done until the money is in the bank.  Sales processes can be exhausting and easily tilted by seemingly minor issues, such as cultural fit. Moreover, merger agreements tend to be long and incredibly nuanced.  “Work to proactively manage cultural fit and augment your team with experienced outside advisors,” they said, listing key areas to think about.

The importance of culture alignment: Leaders prioritize cultural fit when buying companies.  Identify and clearly highlight your company’s cultural strengths. Aligned values will strengthen the deal’s viability and support post-close success.

Surround yourself with experienced advisors: There is a lot to be negotiated in a sale process beyond price.  Potential acquirers likely will have more experience than you on how to tilt terms and definitions to their advantage.  Be sure you have experienced advisors to help you strengthen your negotiations and avoid unexpected surprises.

Every founder aims to leave a lasting impact on their industry and create meaningful value for their team and investors. Leaders who actively manage the factors within their control achieve the best outcomes.