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A mid-sized pension fund has caught the Canadian tech bug: OPSEU Pension Trust (OPTrust), which manages $20-billion in assets on behalf of 92,000-plus past and present Ontario government employees, has emerged as an anchor investor in Vancouver venture-capital firm Yaletown Partners’ new Innovation Growth Fund, committing $20-million toward its $200-million fundraising goal.

Yaletown, which recently expanded to Montreal and Toronto, is announcing on Wednesday that it has raised more than $100-million for its third venture fund and disclosing OPTrust as a backer.

“We’re putting a toe in the water in the scale-up economy,” OPTrust chief executive Hugh O’Reilly said in an interview. “We think this is important [for] Canada and Ontario for institutional investors to be active in this part of the ecosystem.”

Canadian institutional investors abandoned the Canadian technology venture capital (VC) market en masse following the Great Recession, and many never came back.

Ottawa and the provinces have since pumped hundreds of millions of dollars into Canadian VC and OPTrust is following a few domestic institutional investors and corporations who have been active in the space, notably OMERS, the Caisse de dépot et placement du Québec, Power Corp. of Canada and Fairfax Financial. But despite a resurgent Canadian tech scene, domestic institutional investors have largely remained on the sidelines.

OPTrust isn’t interested in just dashing off a cheque or shifting some private-equity dollars to venture, Mr. O’Reilly said . The intent is to build a “multidimensional strategic alliance” with Yaletown, he said, whereby Yaletown’s partners educate OPTrust on big shifts in the technology landscape and their potential impact on the economy. OPTrust in turn will second employees into Yaletown “so we can learn more about how to invest in this area,” Mr. O’Reilly said. “I want to create an environment that’s risk-conscious, not risk-averse.”

OPTrust is allocating funds from a $300-million “incubation portfolio” committed to a range of alternative assets including timber and aquaculture. If the experiment works, OPTrust could expand its venture capital investments, either by upping its stake in Yaletown, backing other VC firms or investing directly in deals, Mr. O’Reilly said. “We want to understand this part of the ecosystem a lot better [and] be much more active in it.”

There’s a twofold reason to invest in scaling tech companies: to generate returns but more significantly, Mr. O’Reilly said, to understand how those disruptive firms could redefine values of everything else in OPTrust’s portfolio. An example is real estate: malls, office buildings and warehouses have been a mainstay of pension portfolios for years. But their values could shift as e-commerce kills traditional retailers, office and apartment managers adopt “smart-building” technology that lowers operating costs or increases rent revenues and industrial buildings are outfitted with sensors, robots and cloud servers for new purposes.

Why pick Yaletown? The firm, which focuses on “intelligent industry” startups geared to make work processes and capital assets more efficient, emerged as one of Canada’s leading venture capital investors this decade thanks in part to the sale of Yaletown-backed internet-of-things company Bitstew Systems Inc. to General Electric Co. in 2016. Yaletown committed about half of its $100-million second fund to “emerging growth” companies, typically investing in seasoned startups that had dozens of employees and products in market generating millions of dollars in annual revenues.

By focusing on firms that survived the early years and hit success, Yaletown was able to fuel their expansion into new territories or adjacent businesses – a less risky bet than volatile startups. That part of Yaletown’s portfolio had enough successful – if not blockbuster – “exits” (sales or initial public offerings) to return more than $50-million to investors, greater than the capital they invested. With several promising firms still in the portfolio, Yaletown managing partner Salil Munjal estimates the emerging growth fund will return three to four times the cash that investors committed.

“A lot of funds don’t want to invest too early because it doesn’t fit the risk profile,” Mr. Munjal said. “With a modest injection of funds we can build [decently] sized technology companies. Suddenly that’s very interesting to a pension fund and looks like something it would back.”

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