Move over Ottawa: The U.K. is courting Canada’s big pensions, too

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The Canadian government isn’t the only one looking to tap into billions of dollars invested by the country’s largest pensions.

Officials from the United Kingdom have been making the rounds in Canada this month, talking to executives at the Maple Eight, a group of major pension investment organizations that includes the Canada Pension Plan Investment Board, the Ontario Teachers’ Pension Plan and the Caisse de dépôt et placement du Québec.

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On their agenda is an ambitious plan being pursued by Prime Minister Keir Starmer’s new Labour government, which has vowed to improve the country’s transportation and infrastructure systems, to build more homes, and to move forward on the energy transition away from carbon-based fuels.

A new £7.3bn National Wealth Fund has been created to help meet these goals, with hopes of tapping into institutional funds both at home and abroad to tackle projects highlighted by Britain’s national infrastructure commission.

“We’ve got a big pipeline,” said Ceri Smith, director general of strategy and investment at the U.K.’s Department for Business and Trade, whose pitch was made to Canada’s largest pensions during stops in Toronto and Montreal. “We have literally tens of billions of pounds of future demand in order to do the transition, but also to renew infrastructure in the U.K.”

Britain has underinvested in infrastructure, with investment levels the lowest among G7 countries over recent decades, Smith said, and this is “something the new government is absolutely determined to address.”

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And that’s where Canada’s largest institutional investors come in.

Like the Canadian government, the U.K. is hoping that the funding required for such large-scale projects will come not only from government coffers but from well-endowed institutional investors that already pump money into such assets around the world.

“We are absolutely clear that the scale of the investment challenge is such that we cannot finance it ourselves,” he said. “I’ve been spending my time meeting many of the Maple Eight — or nine or 10, depending on who you talk to — and they are already significant investors in the United Kingdom.”

Smith said he expects to continue to the talks with representatives of some of Canada’s largest pension and investment funds again soon, this time in London, at an Oct. 14 invitation-only summit on international investment, the first convened by the new Labour government.

“We’re looking forward to welcoming a significant number of Canadian investors, including but not limited to the Maple Eight,” he said, adding that the turnout is expected even though the event falls on Canada’s Thanksgiving holiday.

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Canadian pension funds have been eager investors in the United Kingdom in the past, setting up offices in London to make investments across Europe, and enjoying a relatively familiar and stable government and regulatory landscape.

For example, Teachers’, Ontario Municipal Employees Retirement System (OMERS), Alberta Investment Management Corp. (AIMCo), and the Caisse own stakes in major airports in London. PSP Investments, meanwhile, teamed up with Bridge Industrial in 2021 to develop logistics properties in the United Kingdom, targeting a portfolio of US$1.4 billion.

Two of Canada’s major pensions, however, are still licking their wounds after one major U.K. investment ended in disaster.

OMERS was forced to write off a 32 per cent stake once worth well over $1 billion in Thames Water Utilities Ltd. earlier this year after the company, Britain’s largest water and sewage utility with 16 million customers, fell into default following a series of costly financial and regulatory missteps. British Columbia Investment Management Corp. holds an eight per cent stake.

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The outcome made for some pointed discussions with the U.K. officials this month.

“We’ve talked about it with a couple of people who had significant stakes (in Thames Water). It is very clear that some people are feeling bruised,” Smith said as he wrapped up a Toronto visit last week and got ready to head for Quebec. “(They) feel that, you know, it means they have a level of caution around investing in regulated assets. And I understand that,” he said.

OMERS and BCI not only had to deal with the financial and political strain, but there were also warnings that their involvement carried reputational risk that could make investing around the world more difficult. Those scenarios seems to have been avoided largely because other infrastructure investments have performed relatively well so far, according to an Oct. 3 report by analysts at DBRS Morningstar.

Another potential wedge in the usually close economic and investment relationship between Canada and Britain arose in January when U.K. officials walked away from trade talks after reportedly getting into a dispute with Canada over British cheese imports.

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In recent months, however, both the U.K.’s deputy trade minister for North America, Alan Gogbashian, and U.K. Chancellor of the Exchequer Rachel Reeves have made trips to Canada. Gogbashian was at the British Consulate in Toronto at the same time as Smith’s visit, while Reeves came to Canada in August.

In an interview, Gogbashian said he’s confident the two countries can continue to build on a strong foundation.

“Although the FTA (free trade agreement) didn’t proceed (in January), the existing trade relationship with Canada without an FTA is already incredibly strong,” Gogbashian said. “We’ve got the existing U.K.-Canada trade continuity agreement (and) annual trade between the U.K. and Canada is at $44 billion Canadian dollars, so it’s already an extremely positive situation.”

The U.K. was Canada’s fourth-largest single-country trading partner for goods and services in 2023, according to Global Affairs Canada

Moreover, Gogbashian said, Canada had made more than $100 billion in direct investments in the U.K. by the end of 2023.

He said there was no update on when the free trade talks — which reportedly stalled because the U.K. didn’t want to lose protections from tariffs on cheese when their producers no longer qualified under European Union quotas as of the end of 2023  — will resume. Smith said his understanding is that the new government, which inherited a number of files involving different jurisdictions, is “taking stock” of where their priorities will be.

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“I don’t think that any decision has been taken on the resumption,” he said. “What I’m here in part to do is to just reassure investors that the new government remains absolutely committed to that deep relationship (on foreign direct investing) and then trying to give them an insight into what the new government’s great priorities are.”

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