In a recent development, OMERS, the Ontario Municipal Employees Retirement System, has announced an ambitious plan to increase its investments in Canada. This move, led by CEO Blake Hutcheson, aims to inject at least $10 billion into various sectors over the next five years, marking a significant shift in strategy.
The Investment Landscape
OMERS currently has a substantial portfolio, valued at $145 billion, with only 18% invested in Canada. This translates to approximately $26 billion. However, Hutcheson aims to increase this domestic allocation to 25% within the next five years.
The focus will be on infrastructure and real estate, with OMERS expressing confidence in potential deals in defense and growth capital for Canadian startups. Hutcheson believes that the conditions are now more favorable, creating an opportune moment for this strategic shift.
Existing Investments and Future Opportunities
OMERS already has notable investments in Canada, including a major stake in Bruce Power, a nuclear energy provider, and ownership of Teranet, a land registry provider. Its real estate portfolio boasts prominent malls like Yorkdale Shopping Centre and iconic hotels such as the Fairmont Banff Springs. Additionally, OMERS indirectly holds a 5% stake in Maple Leaf Sports and Entertainment, owners of popular sports franchises like the Toronto Maple Leafs and Raptors.
Despite these significant holdings, a large portion of Canada's largest pension funds' collective management, approximately $2.6 trillion, is invested abroad. This has prompted governments to encourage more domestic investment. While pension fund CEOs have expressed openness to increasing Canadian investments, they have also emphasized the need to balance this with their primary mandate of seeking the best returns for their members globally.
A Shift in Tone and Strategy
Hutcheson's announcement is notable as he is the first CEO of a major Canadian pension fund to set a specific target for boosting domestic investment. This marks a change in tone and a more proactive approach. He attributes this shift to improved conditions and a sense of partnership with policymakers at all levels of government.
OMERS has adjusted its asset allocation models to favor Canada, and its leaders have signaled to the board that the time is right to increase capital deployment within the country. This additional $10 billion in investment, potentially leveraging borrowed funds, could result in up to $20 billion of capital being directed towards Canadian infrastructure and real estate projects.
Government Initiatives and Business Sentiment
The Canadian government has been actively engaging with pension fund leaders to enhance the country's investment appeal. Initiatives like the Major Projects Office aim to expedite approvals for priority projects. Prime Minister Mark Carney and Finance Minister François-Philippe Champagne have led high-profile trips abroad to promote Canada as an investment destination.
While some business leaders have expressed concerns about the gap between talk and actual transactions, Hutcheson highlights noticeable activity increases, particularly in real estate. He attributes this to various factors, including an HST rebate on new homes, reduced municipal fees, and faster project approvals.
Relative Attractiveness and Risk Considerations
Canada's relative attractiveness as an investment destination has also improved due to global uncertainties, such as wars, inflation, and political instability. This has led to a "bigger risk premium" on deals in other countries, including the United States. Additionally, OMERS expects the Canadian dollar to strengthen relative to other currencies, further incentivizing domestic investment.
However, OMERS, like many large pension funds, remains cautious about government partnerships in greenfield projects due to the high risks associated with building costs and completion timelines. Instead, they advocate for the sale of key infrastructure assets to private owners, such as airports, hydroelectric power assets, and highways.
Conclusion
OMERS' decision to increase its Canadian investment portfolio reflects a strategic shift towards domestic opportunities. This move is driven by improved conditions, government initiatives, and a sense of urgency to act on discussions between business leaders and policymakers. While challenges remain, OMERS' increased commitment to Canadian investments is a positive step towards strengthening the country's economic landscape.
