Listed markets mask weakness in buyout portfolios
The contrast inside Canada’s largest pension funds has become harder to ignore. While public equities helped lift overall portfolio returns in 2025, several of the country’s biggest retirement investors reported notably weak results in private equity and broader private markets. The divergence is striking because these institutions have long been viewed as some of the most sophisticated users of private capital, with large direct investment teams and significant allocations to buyouts, growth assets and private credit.
Recent disclosures show that the pressure was broad rather than isolated. Ontario Teachers’ Pension Plan recorded a 5.3 percent loss in private equity, while OMERS posted a 2.5 percent decline in the same asset class. For Ontario Teachers’, the result marked its weakest private equity performance since 2008. For OMERS, it was the poorest showing since 2020. La Caisse, Quebec’s state pension fund, remained positive at 2.3 percent, but still fell well short of its benchmark, which returned 12.6 percent. The Healthcare of Ontario Pension Plan also reported a modest 3.6 percent private equity return, while its wider private markets portfolio returned 2.1 percent against 11.7 percent for listed assets.
The message from those figures is clear. In a year when traditional markets were strong enough to support headline performance, private investments failed to deliver the premium that many investors expect in exchange for illiquidity, leverage risk and longer holding periods.
Higher rates and weak exits squeeze private equity
The backdrop has been building since interest rates began rising in 2022. More expensive borrowing has weighed on dealmaking, reduced valuations and narrowed exit opportunities for private equity managers seeking to sell businesses or float them in public markets. Those pressures have made it harder to generate the kind of double-digit gains that institutional investors have long treated as the minimum justification for maintaining large allocations to buyouts.
That disappointment is especially significant in Canada, where public sector pension funds have committed more than one fifth of their assets to private equity. Such exposure reflects a strategy built over many years around the idea that scale, long horizons and in-house expertise would allow the country’s largest plans to outperform peers through private markets. The latest results suggest that this model is not immune when financing costs rise and buyers retreat.
Ontario Teachers’ said private equity investors had been dealing with a more expensive cost of capital, fewer exit routes and greater operating complexity, all of which weighed on returns. Its private equity portfolio declined from $60.4bn to $50.8bn during the year, partly because of full or partial disposals involving BroadStreet Partners, Sahyadri Hospitals and Amica Senior Lifestyles. The fund said it has responded with a strategic repositioning toward areas where it believes it has stronger advantages, particularly financial services, business services and technology.
Fund-specific pressure exposes uneven sector bets
OMERS also faced a difficult year in private equity. Its $25.6bn portfolio produced a net investment loss of $700m, with weakness concentrated in industrial assets as well as earlier-stage growth and venture holdings. The fund has been active in selling investments, including care manager Paradigm in California and Toronto-based CBI Health, as it navigates a tougher environment for valuations and liquidity.
La Caisse pointed to slow earnings growth among portfolio companies and weaker valuation multiples in technology and healthcare as key reasons for its underwhelming private equity return. Those comments highlight the broader strain on sectors that had previously benefited from abundant capital and higher earnings expectations. HOOPP’s figures tell a similar story. Its private assets remained positive, but the gap versus listed holdings showed how sharply public markets outperformed the private side of the book in 2025.
Even with those disappointments, total fund performance held up because listed equities did the heavy lifting. Ontario Teachers’ generated an overall net return of 6.7 percent, OMERS 6 percent and La Caisse 9.3 percent. Public markets therefore softened the impact, but they also exposed how much value private portfolios left on the table in a year when equity benchmarks were supportive.
Private credit redemptions deepen concerns across the sector
The unease is not limited to buyouts. Wealthy investors have also been pulling money from large private credit vehicles, adding another sign of stress across private capital. More than $10.1bn of redemption requests hit some of the biggest private credit funds in the first quarter, leading managers including Blackstone, BlackRock, Cliffwater, Morgan Stanley and Monroe Capital to restrict withdrawals and meet only about 70 percent of requests so far. Those funds oversee roughly $166bn, a modest slice of the $1.5tn direct lending market, but they sit at the center of a segment that has been one of private markets’ fastest-growing areas.
The reversal is notable because private debt funds had attracted nearly $200bn of inflows over the previous five years. Investors were drawn by yield, floating-rate structures and the promise of resilience in a higher-rate era. The recent redemption wave suggests sentiment has shifted, with performance concerns now outweighing the attraction of private market income. One industry executive described the situation as a market where the excess enthusiasm has faded and pressure is now visible throughout the system.
The strain is also reaching technology buyouts, where years of aggressive leverage are colliding with higher interest costs, weaker software valuations and a narrower path to exits. The example of Pluralsight, where Vista Equity Partners’ roughly $4bn equity stake was effectively wiped out after control passed to private credit lenders, has become an emblem of the changed environment. Private lenders retain seniority and covenant protection, while equity sponsors are left absorbing the first losses. With loan marks under pressure and many firms reluctant to crystallize damage through markdowns or renegotiations, the central question for 2026 is whether private markets are facing a temporary valuation reset or a deeper repricing of risk that public markets have not yet fully reflected.
