Canada’s largest pension funds have been identified as investor role models as the new government of the United Kingdom looks to catalyze growth with more assistance from the Local Government Pensions Scheme (LGPS) and other UK-based defined contribution pension plans. Earlier this month, Chancellor of the Exchequer Rachel Reeves announced that a comprehensive review of the country’s “pension landscape” would begin with a focus on investment and an eye to how the LGPS’s ₤360 billion (CAD $640.8 billion) asset base could be better deployed to stimulate national economic development and infrastructure investment.
In step with the government initiative, Local Pensions Partnership Investments (LPP) — which currently oversees ₤25.7 billion (CAD $45 billion) of assets under management as one of the LGPS’s eight pools — has released a report endorsing the whole-scheme management approach that Canada’s largest pension funds, dubbed the Maple 8, employ. That includes a significantly greater allocation to private markets than the current LGPS average, as well as larger allocations to infrastructure and real estate.
“The approach taken by Canada to management of public pensions is internationally recognised as a leading example of ‘what good looks like’,” the report maintains. “They have also built a circa CAD $2 trillion capital pool to back the pensions of Canadians. This is equivalent to approximately 100 per cent of Canadian GDP.”
The UK government projects individual LGPS beneficiaries could realize a ₤11,000 (CAD $19,580) boost to their savings pot through a realignment of investment priorities and consolidation of the scheme’s 87 existing funds that now cost nearly ₤2 billion (CAD $3.5 billion) in annual fees. The LPP report theorizes that replicating the Maple 8 approach across the whole of the LGPS could garner an additional ₤16 billion (CAD $28.5 billion) in equity capital that could be invested in infrastructure and suggests “wind farms, grid upgrades and flexible manufacturing facilities” could engender good returns.
The Maple 8 is comprised of: Canada Pension Plan Investment Board (CPP Investments); Alberta Investment Management Corporation (AIMCo); British Columbia Investment Management Corporation (BCi); Caisse de dépôt et placement du Québec (CDPQ); Healthcare of Ontario Pension Plan (HOOPP); Ontario Municipal Employees Retirement System (OMERS); Ontario Teachers’ Pension Plan; and Public Sector Pension Investment Board (PSP Investments). The LPP report notes they share “key features” which include: independent governance; large allocations to the private markets; internal management; and a focus on long-term value creation.
Collectively, 48 per cent of the Maple 8 allocations are to the private markets, while there is a much more modest 20 per cent allocation to the private markets across the LGPS. Currently, the Maple 8 have an 11 per cent allocation to infrastructure and a 13 per cent allocation to real estate versus the LGPS’s respective allocations of 6 per cent and 9 per cent to those asset classes.
The first phase of the UK review is meant to look at how investment in UK-based assets could boost returns for pension savers, contribute to the capital and financial markets and stimulate economic growth. It is also expected to inform the government’s promised Pension Schemes Bill, which is anticipated for later this year.
