Canadian institutional equity managers, pinched by client shifts from domestic equities and increased domestic competition for business, could also be facing competition from the country's large public pension funds.
The C$60.8 billion (US$57.8 billion) Ontario Municipal Employees' Retirement System, for one, is poised to manage assets of smaller pension plans, endowments and foundations as well as the system's own money via its investment arm, OMERS Investment Management, Toronto. And the entry of OMERS could spell trouble for Canadian money managers.
“If OMERS starts to make inroads in managing pooled money, it'll be a massive issue for money managers,” said Zainul Ali, Toronto-based director, head of manager research, Americas, at Towers Watson & Co. LLC, adding the pension fund is not in a position yet to begin marketing efforts. “They still have to put some pieces together.”
One of those pieces is approval by Ontario legislators for the pooling of assets. A recommendation to pool as much as $50 billion in public pension and other investment funds, and possibly more in assets from endowments and defined contribution plans that choose to participate, was made in an October 2012 report from William Morneau, pension investment adviser in the Ontario Ministry of Finance. However, such legislation has not yet been introduced.
(All dollar figures in the story, unless otherwise noted, are in Canadian dollars.)
“To the extent that these pools are large and choose to manage money in-house, or that smaller plans choose to work with existing pools (such as OMERS and the $129.5 billion Ontario Teachers Pension Plan, Toronto), this may reduce assets available to be managed by external managers,” said Jaqui Parchment, partner, head of investments, Canada, at Mercer (Canada) Ltd., Toronto.
“It's an increasingly crowded field in Canada, and institutions are more likely today to hire specialists, which often means non-Canadian firms. For a Canadian manager, there's much more competition,” added Ms. Parchment.
In a statement, Toronto-based OMERS said it received legislative authority in 2009 “to provide investment management services and products through an authorized subsidiary” for Canadian public and private pension plans, government agencies, endowments and registered charities. The pension fund has registered to provide such services in eight provinces, according to its website. Officials would not say if OMERS Investment Management is actively marketing to those funds.
Ontario Teachers, however, has no plans to manage external money, said spokeswoman Deborah Allan. “We've made a conscious decision to remain focused on our own clients,” she said.
The move by OMERS, would be another blow to Canadian equity managers, who in recent years have faced a decline in the number of Canadian defined benefit plans, as corporate mergers have forced plan consolidations and companies have closed and frozen plans. Meanwhile, equity managers also have been hit by shifts in client asset mixes to global equities and alternatives — away from their traditional strengths in Canadian equities — and larger public plans that have moved their assets internally.
In response, Towers Watson's Mr. Ali said Canadian equity managers have three options: move into global equity, sell to a foreign company or wind down operations and exit the business.