Canada pension funds eye Brexit risks
Holding off on U.K. deals until dust settles
TORONTO• Some of Canada’s top pension funds, among the world’s biggest investors in British real estate and infrastructure, are holding back on U. K. deals until after Britons vote on whether to leave the European Union, according to senior executives.
These funds, which together manage more than $ 700 billion in assets, fear valuations could drop if Britain chooses to leave the bloc and have particular concerns about the impact on London’s financial district, the executives said.
There is no precedent for an economy as big as Britain’s leaving a trade bloc, and the rival campaigns paint contrasting pictures of what quitting the EU might mean for its trade.
Pro- Europe campaigners say banks and other financial institutions could pull operations out of the City of London if they cannot access critical EU markets.
An executive at one of Canada’s biggest public pension funds, who spoke off the record due to the sensitivity of the issue, said the risks posed by the June 23 vote were part of the reason it passed on a recent deal for an office property in London’s financial district. “London is the financial centre of Europe, but if that changes, the whole trajectory is different. That’s become a factor in our thinking,” he said.
Canadian institutions have been the second-biggest international investors in U.K. real estate over the past three years, with direct investments peaking in 2015. They are also prominent infrastructure investors.
The Canada Pension Plan Investment Board ( CPPIB) had $15.2 billion invested in Britain at the end of March 2015, almost six per cent of its assets at that time.
Fund executives say they will still pursue one- off opportunities, pointing to the recent purchase of London City Airport by a group including three Canadian funds. But they note stringent criteria would be applied to take into account the so- called Brexit risk. “We’d want to go through what the different potential scenarios are — how the situations might evolve from a political, regulatory and economic perspective,” an executive at one of Canada’s top three pension funds said.
London City Airport was bought by a consortium including the Ontario Teachers’ Pension Plan, the Ontario Municipal Employees Retirement System ( OMERS) and the Alberta Investment Management Corp. (AIMCo) for more than two billion pounds (US$2.82 billion).
AIMCo chief executive Kevin Uebelein, speaking after the deal, said that Brexit concerns were taken into account when negotiating.
“The prospect of Brexit was not unknown to us as we crunched those numbers. You factor those things into your investments,” he said.
Jonathan Simmons, chief financial officer at OMERS, which owns the high- speed rail link between London and the Channel Tunnel in partnership with Teachers, said last month his fund was looking at how it can offset the risk to its U.K. holdings.
“We’re focused on what’s going on right now around Brexit, and of course ... we’re t hinking about how we hedge our positions,” Simmons told a media briefing.
Chinese, Russian and Middle Eastern investors are cooling on London’s luxury property market as a result of factors including the low price of oil, the Russian ruble’s collapse, slowing Chinese growth and higher taxes for foreign buyers.