The benefits of scale, taking a considered approach to any changes and the importance of strong governance — particularly in times of political upheaval — are key lessons that U.K. pension funds can take from their Canadian peers.
“Whenever the political spectrum shifts, it’s important to be able to maintain that long-term focus — because otherwise it’s impossible to invest in five, 10, 15, 20-year ventures, if you’re going to have that interruption along the way,” said Sebastien Betermier, executive director at the International Centre for Pension Management at the Rotman School of Management, University of Toronto.
Betermier was speaking on a panel focusing on Canada’s so-called Maple 8 public pension funds at the annual Pensions and Lifetime Savings Association investment conference, held in Edinburgh on March 11-13. The group consists of Alberta Investment Management Corp., Edmonton, which oversees C$168.9 billion ($118.1 billion); Canada Pension Plan Investment Board, Toronto, (C$700 billion); British Columbia Investment Management Corp., Victoria (C$229.5 billion); Caisse de Depot et Placement du Quebec, Montreal (C$473 billion); Healthcare of Ontario Pension Plan, Toronto (over C$110 billion); Public Sector Pension Investment Board, Montreal (C$264.9 billion); Ontario Teachers' Pension Plan, Toronto (C$247.2 billion); and Ontario Municipal Employees Retirement System, Toronto (C$138.2 billion).
He referred to a recent move by the provincial government of Alberta to fire the entire board and reset the funds of the AIMCo.
“That I personally find actually quite dangerous as an action, because ... all of that strategy being put in place suddenly is put to a stop,” Betermier said. “And so one ... lesson from Canada is there is no such thing as being 90% independent. Because that independence matters a lot in those critical times when you’re entering turbulent markets or turbulent political times, like we’re seeing right now. You have to be able to keep the focus on ... so that even when the political spectrum shifts, the fund continues,” he added.
Scale is also a key benefit of the largest Canadian plans — one of the reasons that the U.K. government has been looking at the country for inspiration when considering changes to the local government pension scheme sector.
It's also important for those looking at the large Canadian public plans to note that the while the Maple 8 has reached about C$2.21 trillion ($1.55 trillion) in assets — compared with the LGPS funds' about £400 billion ($495.8 billion) in total assets — “it wasn’t always that way,” said Mei Mavin, head of global corporate communications at CPP Investments.
CPP Investments has been investing for about 25 years, with the first transfer of funds to the plan taking place in 1999 — just C$12.1 million in assets. Most of the growth took place after 2006, when the fund decided to become an active manager.
“It was a slow burn. It wasn’t anything that happened overnight,” she said.
CPP has “made very significant decisions along the way, in terms of … opening offices globally,” active management and hiring internal expertise. “We take a bit of a crawl, walk, run approach. We don’t jump into new markets just because it’s exciting or interesting,” she added.
The discussion took place amid a backdrop of change in the U.K. retirement market, with the government looking at consolidation among the LGPS sector in particular. Chancellor of the Exchequer Rachel Reeves visited Canada last year in search of inspiration.
The panel was also asked what one thing they would recommend the U.K. taking from Canada’s retirement market, and what they would leave. They agreed that the scale and governance structures were good candidates for "takes."
However, Bertemier said he is worried there is a “retirement crisis coming up.” The discussion was looking at the public system, but he noted that the private sector system in Canada leaves about 80% of workers without enough savings for a comfortable retirement.
