Canada pension funds change conservative ways and take on private equity- report

December 13
1:37 AM 2013

A report from Bloomberg Businessweek pension funds in Canada have shifted gears in their conservative investing ways in their effort to increase get returns in a low-interest rate environment. The six largest funds in Canada have directly joined in mergers and acquisitions worth $18.4 billion, based on Bloomberg data. This compared with Blackstone Group, Carlyle Group and Apollo Global Management, the three largest buyout groups in the US, which only posted mergers and acquisition deals amounting to only $7.4 billion.

More deals are set to be in the pipeline, the report said. People knowledgeable about the matter said Borealis is also one of those making a final offer for Fortum's natural gas pipeline network in Finland. Borealis is the infrastructure unit of the Ontario Municipal Employees Retirement System.

The report said many public pension plans in the US are prevented from joining directly in acquisition deals. Instead, they pour investments in the funds of private equity firms which usually charge 2% of assets and 20% of gains to limited partners. Meanwhile, public funds in Canada have been investing in private equity firms for some time as passive limited partners. The report said the move to direct private equity investments is an effort to avoid fees and enhance performance so they could meet their obligations to the country's retirees.

The report said that four of the largest Canadian funds invested around 11% of their total assets to private equity last year directly or as limited partners. This compared with 3.6% from 2005. Caisse de Dépôt et Placement du Québec Chief Executive Officer Michael Sabia was quoted as saying in the report, "As returns from big fixed-income portfolios come down, you have to find sources of replacement returns that come at reasonable risk levels." Caisse de Dépôt et Placement du Québec is the second biggest pension fund in Canada.

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