Pension Funds Rethink Private Equity Strategy, Partnerships Over Direct Deals and the Ripple Effects Across Markets

A notable shift is unfolding within some of the world’s largest pension funds, particularly in Canada, where major plans are restructuring their private equity strategies in response to evolving market dynamics. Historically, funds like the Canada Pension Plan Investment Board (CPP Investments), Ontario Teachers’ Pension Plan, and others relied heavily on direct private equity investments—buying entire companies and managing them internally. But with exits proving more difficult and direct ownership demanding heavy operational oversight, these pension giants are increasingly favoring partnership models with large global private equity firms such as Blackstone and KKR, among others.

According to industry observers, several pension entities are reducing direct private equity exposure and instead channeling capital through co-investment agreements or fund commitments alongside established general partners. Ontario Teachers’ plan, for example, has publicly stated it is focusing more on strategic partnerships rather than direct control investments, citing challenges in sourcing and exiting viable deals. CPP Investments, which manages one of Canada’s largest pools of capital, has historically pursued a hybrid investment approach that includes partnerships and secondaries, selling a portfolio of limited partnership interests to firms like Ares Management and CVC to rebalance and redeploy capital.

This strategic pivot has broader implications for the private equity industry. By co-investing with mega-funds like Blackstone and KKR, pension plans gain access to top-tier deal flow and operational expertise that private capital markets currently concentrate at the largest firms. Initiatives such as the collaboration between Wellington, Vanguard, and Blackstone to develop investment solutions that bridge public and private markets further illustrate how mainstream institutions are working with large private equity managers to broaden access and streamline capital deployment.

For smaller private equity firms, this trend presents a challenge. Direct investing historically allowed boutique and mid-tier firms to carve out niche strategies and capture outsized returns by taking controlling stakes in undervalued or underdeveloped companies. As pension capital flows toward larger partners with established track records and scale, smaller firms may struggle to compete for capital, forcing many to reconsider their value proposition or shift toward co-investment, specialized industry sectors, or unique value-creation niches to remain competitive.

At the same time, this environment casts a spotlight on family offices, which operate differently from institutional investors. Unlike pension funds that must manage fiduciary obligations for millions of members, family offices deploy their own capital and can act with greater flexibility and longer investment horizons. While some family offices have moderated allocations to private equity in recent years, largely due to illiquidity constraints and allocation limits, many continue to signal interest in selective co-investment opportunities, particularly in private credit, infrastructure and secondaries where cash flows and risk-adjusted returns align with long-term wealth preservation.

For prominent family offices such as Soroban Capital Partners and Glenstone Capital or ultra-high-net-worth ecosystem portfolios like Canyon Partners and Richardson Financial Group, this shift can present a competitive advantage. With fewer smaller private equity firms able to deploy capital effectively or compete for mandates, family offices may fill the gap, especially in secondaries and niche co-investment deals that require flexibility and discretionary capital decision-making. Their ability to move quickly and with fewer liquidity constraints than institutional LPs gives them a potential edge in securing assets that larger pension and private equity funds might pass over.

The broader market impact of these trends is significant. The movement toward partnership models and co-investments improves portfolio diversification and can reduce concentrated risk for large institutional investors, but it also concentrates influence and deal flow among a smaller group of mega-fund managers. Smaller firms may pivot to alliances, carve-outs or sector specialization to capture remaining opportunities. Meanwhile, family offices, operating outside the traditional LP framework, may play an increasingly central role in providing capital and competitive pressure in segments overlooked by larger institutional players.

As pension funds continue to recalibrate their private equity playbooks, the industry is witnessing a structural evolution: one that reinforces the power of scale and strategic partnerships, while simultaneously forcing smaller players and opportunistic family offices to adapt or cede ground in a rapidly changing private market landscape.