I’ve quoted this headline from Julian Bovill as it is relevant. This is from the FT courtesy of Mary McDougall
Canada’s second-largest pension fund plans to invest more than £8bn in the UK over the next five years, in a boost to chancellor Rachel Reeves as she seeks external investment to fund big infrastructure projects.
The irony is that we regard the Canadian pension fund as a model for our own. We consider the Australian pension model so advanced that Nest has invested £10bn in capacity through IMF, allocating the first £500m to private bonds last week.
How can the Canadians and Australians be seen as excellent when investing in the UK but regarding the UK pension as nuts for re-establishing a home bias?
This from Mary McD.
Caisse de dépôt et placement du Québec, which manages C$473bn (£254bn) on behalf of 6mn pension savers, planned to increase its allocation to UK assets by 50 per cent over the next five years, the fund’s chief executive Charles Emond told the Financial Times in an interview.
“We’d like to be a partner of trust and choice in the UK,”
said Emond, adding that the government’s plans to increase infrastructure spending were
“a huge opportunity and we’d like to be there in the early stages to see if we can do something”.
He added that the UK would be “top of the list” compared with many other countries in terms of
“willingness, clarity, transparency, deal mode and execution, seriousness and welcoming us . . . from that perspective they stood out and I think real stuff will come out of it”.
Unsurprisingly, the Canadians don’t look like expanding holdings in the US, Europe and the UK look more the Mounties investment partners, especially Britain with its well-proclaimed Accord.
Emond said this commitment from UK pension funds could create a “positive synergy” and help attract more overseas investment into the UK. He said CDPQ was keen to invest alongside British retirement funds as “like-minded partners” with local knowledge.
Eh? What’s going on here? This sounds like Canadians and Australians wanting to work with UK pension funds in collaborative partnerships.
When I read to and listen to pension funds and their trustees complaining about being interfered with, I wonder when “speculation” went out of favour. Britain is known for its entrepreneurs, the venture capital that arrives through EIS and VCTs . But then funding dries up and further stages of finances are provided by overseas countries right through to “private equity” and “private credit”.
Pension schemes may not want to provide venture capital and frankly they are not needed. They are needed for patient capital and that is where we are proving ourselves terrible whingers. The smaller occupational schemes (less than £5bn) can only access private funders through LTAFs which have been drawn up to meet worries about charges, liquidity, valuations and concentration of risk from private assets. These are worries for small schemes and LTAFs make some sense but we have designed products for schemes that will not be around in five years.
Pensions need to do in the UK as they are doing in Canada and Australia – being big enough to avoid LTAFs. Simply running DC and DB pension schemes in listed index funds (as is the case in many schemes) is not what Canada and Australia expect from us. Quite frankly it is not what Britain expects of itself.
We have champions we should listen to and not all of them are from Canada.
Infrastructure investment facilitates growth in economic output and productivity through its subsequent use – the construction phase is a one-off economic boost. This has been particularly evident in the US in recent times with the billions of capex spending on data centers. However, private sector investment in infrastructure faces a basic conflict. These private investments should seek the maximum return that they can achieve, and that will raise the subsequent costs of usage of that infrastructure, lowering future growth rates. This is immaterial to a foreign investor. such as the Canadians, as they are intrinsically concerned only with the maximal performance of the current investment. However, this is not the case with domestic investors, such as pension funds, who need also to consider the long-term economy in which their members will live.
There is nothing new in this – we saw it in spades in the early PFI models, and unfortunately HMT’s interventions were warranted, though self serving in that they reduced the excessive returns to investors but did not lower the costs to producers and users of the infrastructure usage. Indeed much of the productivity underperformance of the NHS can be attributed to the proliferation of this PFI model there.
Thanks, I will give this some thinking and would be grateful for any development of this thinking. I appreciate your criticism of PFI but must we repeat the mistakes?