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Canadian pension funds putting down roots abroad

Leo de Bever said it’s more efficient for AIMCo to have foreign offices.

Asset owners opening offices across globe to be closer to areas where they're making investments

More large Canadian pension funds and the crown corporations that manage their assets are opening offices beyond their borders, looking to enhance their alternative investments outside of Canada.

So far in 2014, the C$114 billion (US$106.3 billion) British Columbia Investment Management Corp., Victoria, and the C$70 billion Alberta Investment Management Corp., Edmonton, have opened their first international offices in London. And in June, Michael Sabia, president and CEO of the C$200.1 billion Caisse de Depot et Placement du Quebec, Montreal, announced the fund would open offices in Washington, Mexico City and Singapore, in addition to its current offices in New York and Beijing.

They join several other Canadian plans with offices abroad:

  • Canada Pension Plan Investment Board, Toronto, which oversees C$219.1 billion in assets for the Canada Pension Plan, Ottawa, with offices in New York, London, Hong Kong and, most recently, in Sao Paulo;
  • C$140.8 billion Ontario Teachers' Pension Plan, Toronto, with offices in New York, Hong Kong and London; and
  • C$65.1 billion Ontario Municipal Employees Retirement System, Toronto, with offices in New York and London.

Boots on the ground

With so many foreign offices for Canada-based pension funds or their management companies, one might think there's a glut. Not so, said Leo de Bever, AIMCo's CEO, who added that because the Canadian pension funds do a lot of direct investing, that makes it more important for those plans to have boots in the countries where they invest.

“There are 10 of us (large Canadian plans) with a total of C$1 trillion. The U.S. pension fund market is much bigger, but the grasp of their investments isn't like ours. You'll see Canadian names more often (in overseas offices), but that's because we have a different model without third-party managers.”

Ryan Bisch, senior consultant, principal and head of Canadian alternative investments for Mercer Canada Ltd., Toronto, concurred, saying most of the plans with foreign offices opened them in regions around their existing investments.

“It is a trend for sovereign wealth funds and large pension funds like the Canadian plans,” Mr. Bisch said. “Investing is global. It's important to have people on the ground to find additional investment opportunities.”

In seeking new investments, the competition is strongest in infrastructure, especially among Canadian plans, U.K. and European pension funds, and sovereign wealth funds that are opening offices in the same cities.

“The competition is more fierce in infrastructure investments,” Mr. Bisch said. “Fewer investment opportunities are available for investment, and there's more competition for a limited amount of opportunity set.

“There's really no dominant force in infrastructure,” Mr. Bisch added. “U.K. (pension) funds, European pension funds, sovereign wealth funds, Canadian funds all are battling it out or joining forces to get into infrastructure. And at the end of the day, it's very, very competitive.”

Still, Mr. de Bever said, AIMCo is very discerning on committing to infrastructure investments. “We don't want to win an asset and then be stuck with it for 20 years at 5%,” he said. “We sometimes lose by a lot because sovereign wealth funds (we're competing with for investments) are less disciplined. The economics for them look a lot different than what they look like for us.”

Less competition

Among pension funds and sovereign wealth funds, there is less competition for other international alternatives investments, like private equity and real estate, Mr. Bisch said. “The broader private equity and real estate opportunity set is quite vast,” he said.

Those kinds of investments, particularly in Thames Water Utilities Ltd., Open Grid Europe GmbH and Canary Wharf Group PLC, spurred BCIMC to open its London office, said spokeswoman Gwen-Ann Chittenden. In addition, BCIMC plans to open an office in Singapore. “Increasing our local footprint in these regions reflects our global investment mindset and the importance of the U.K., European and Asian markets to our investment strategies. In addition to bringing us closer to many of our existing investments ... a local presence serves to strengthen our existing relationships and provide new opportunities for investment partnerships in both our private and public asset classes,” Ms. Chittenden said.

Maxime Chagnon, spokesman for Caisse, said that while private equity, real estate and infrastructure “are an important part of our strategy ... they are not the only ones. We want to identify the best opportunities, the right partners and strengthen our investment team's expertise and global orientation.”

There's also a basic reason for opening foreign offices, Mr. Bisch added. “Historically, those with no offices who had investments outside the country had to fly people in and out,” he said. “It makes sense to have someone there more permanently. ... Nurturing partnerships is easier when someone's on the ground there.”

“It's very simple: logistics,” added AIMCO's Mr. de Bever said. “We had people making 40 flights a year between London and Edmonton. You look at the wear and tear that creates, and that's part of why we're there. We have a number of people here with young families. It's much more convenient to be there, particularly with regulated assets, like monitoring real estate investments. It's just more efficient to have someone there.”

This article originally appeared in the July 7, 2014 print issue as, "Canadians putting down roots abroad".