[Canada] Canadian Politics Redux

[Grey Fox]

What's our model? 

[crazy canuck]

Relevant-ish to that and interesting (to me and only me) Canada-learnings in the UK.

Following on from work started by previous government, sounds like Labour is planning to reform public pension funds on Canadian lines (hope is to encourage investment in the UK). Currently we have lots of public pension funds with absolutely loads of assets under management but they're very, very fragmented. So the plan is to consolidate them on the Canadian model with the hope it'll prompt private sector investment in the UK (particularly in infrastructure projects because that type of asset is apparently quite attractive to pension funds but very few really have the type of scale needed).

That doesn't actually sound like our model though. Our pension funds are managed to provide roi, not a vehicle for infrastructure investment.

[Sheilbh]

I think that's the same here and wouldn't change. The expected impact on infrastructure investment is basically quite technical and to do with regulation that if you consolidated the pension funds there's an asset type they need to hold a certain proportion of - and there probably isn't enough supply of that at minute. One type of asset that could fill the gap would basically be infrastructure (I think primarily bonds).

On the ROI point there is also a hope it could also help solve the capital depth issue. Because the UK is very successful at start-ups but really bad at scaling them - according to founders access to capital is the big issue and currently basically pension funds are not interested.

I'm not fully sure you can have both - one seems to me about lower risk, regular payments (without FX exchange risk which was a big issue during the Triss experiment) while the other is basically allowing more risk than currently permitted for better return. And in both cases the expectation is there'd be wider economic benefits from consolidation.

[crazy canuck]

I don't think your politicians are understanding how are big public pension funds work.

They are not sources for capital for domestic infrastructure projects or domestic startups.

Quite the opposite. If you look at the holdings of the Canadian pension plan in the private equity sphere, you will see that they mainly invest internationally and particularly in the United States.

You will see that they are heavily invested in the energy sector, which is probably the closest thing that comes to infrastructure. But again they are heavily invested in US companies.

The thing that is likely going to happen with these pension reforms in the UK is something similar to what happened in Canada.  Banks are a very good safe investment for these sorts of funds and they throw off good dividends.  Your banking sector is likely to become even better funded than it is now.

Canada has the same problem with funding tech startups as the UK. Why is that? Because all the smart money funds tech startups that are located in the United States. What often happens is that if a tech startup which is initially located in Canada looks promising they often relocate to the US to have more ready access to the massive amounts of capital available in the US market.

As a sidenote, having Trump elected president may have the effect of keeping more startups on this side of the border because he's just gonna make it so damn difficult for people to have cross  border interactions.

It sounds like what the labour government is trying to replicate on the Canadian model is the business development bank of Canada.  But that is funded through government coffers, not the pension fund.

[Grey Fox]

Quebec pension plan management company is building a public transport electric train in Montreal.

[crazy canuck]

Quebec pension plan management company is building a public transport electric train in Montreal.

Yes, but the claim was that the UK system was being built on the Canadian model not the specific politically driven pension model in Quebec.

But maybe the labour government in the UK didn't understand the distinction?

And to be fair, they might have been thinking about what is now happening in Alberta, which is also clearly going to be something which is politically directed rather than professionally managed.

[Grey Fox]

Quebec pension plan management company is building a public transport electric train in Montreal.

Yes, but the claim was that the UK system was being built on the Canadian model not the specific politically driven pension model in Quebec.

But maybe the labour government in the UK didn't understand the distinction?

And to be fair, they might have been thinking about what is now happening in Alberta, which is also clearly going to be something which is politically directed rather than professionally managed.

Yes, all possible. Also Sheibh uses "Canada" to mean everything about us, not exclusively our federal government layer.

[Sheilbh]

Yes, all possible. Also Sheibh uses "Canada" to mean everything about us, not exclusively our federal government layer.

I think when anyone foreign uses "Canada" they mean all layers. Same as people say Brits or English when they mean UK, not the nations, or American when they mean everything American not just the Federal layer, or Germany etc.

There's zero chance this Labour government will be making any of this politically managed. They've already established or are in the process of significantly reforming 17 independent, non-political bodies

Canada has the same problem with funding tech startups as the UK. Why is that? Because all the smart money funds tech startups that are located in the United States. What often happens is that if a tech startup which is initially located in Canada looks promising they often relocate to the US to have more ready access to the massive amounts of capital available in the US market.

Same - or as often they're bought by a US company then relocated.

Quite the opposite. If you look at the holdings of the Canadian pension plan in the private equity sphere, you will see that they mainly invest internationally and particularly in the United States.

Sure - they actually already own or invest in lots of UK infrastructure too. You spend any time in corporate law and you'll get to know some of the Canadian funds According to the Guardian explainer, the BC fund and Ontario teacher's fund own big chunks of the gas network here, some Canadian pension funds just bought the operator of a lot of regional airports here. And it doesn't always go well I think again the Ontario teachers had to make a big writedown of Thames Water.

But also this is what they're trying to emulate - Reeves has been in Toronto talking about this with ministers and the heads of funds there:

Many point to success stories in Canada, where a handful of schemes, known as the Maple 8, collectively manage around $2tn (£1.1tn) in taxpayer-backed pension schemes for the likes of teachers, municipal employees and healthcare workers. The Maple 8, created after a series of reforms meant to address underfunding in the 1990s, have become well known for investing in infrastructure schemes across the globe, including in the UK.

At the minute the UK has almost 100 different local government pension funds - so part of the bet is just that consolidation will increase capital depth, which I can believe. I think that might be good. I'm not sure it's going to be the solution to all ills that Reeves is hoping for.

[crazy canuck]

I think when anyone foreign uses "Canada" they mean all layers.

That alone accounts for a fundamental misunderstanding of how things work here. 

[Neil]

Quite the opposite. If you look at the holdings of the Canadian pension plan in the private equity sphere, you will see that they mainly invest internationally and particularly in the United States.

I think that's true of investors in general though.  I know that in the last two years, I've had my investment profile tilted specifically away from Canadian options and towards the US, and that's worked out incredibly well for me. 

As a sidenote, having Trump elected president may have the effect of keeping more startups on this side of the border because he's just gonna make it so damn difficult for people to have cross  border interactions.

It might become more difficult to move people around, but money and IP will still flow.  And tech is something that is uniquely well-suited to remote work.  Even then, given the kinds of people that Trump has surrounded himself with, I wouldn't be surprised to see the tech industry retain some sort of privileged pipeline for their worker imports. 

[HVC]

Neil! Hello

[Neil]

Rumour is true - Stephen Harper new chairman of AIMCo.

https://www.cbc.ca/news/canada/edmonton/stephen-harper-appointed-chairman-of-alberta-investment-management-corporation-1.7388582

Trying to restore some trust to AIMCo.  Because of the high-profile seizure of the ATA Pension fund, followed by AIMCo's failure to match the returns that the ATA had been getting for themselves, AIMCo's leadership was covered in the stink of failure. 

And no doubt this does fit in with the suggestions that have been coming out of elements of the government (and the party) that Alberta should explore an independent pension fund.  Harper is still a very popular figure, and people trust him on matters economic. 

[crazy canuck]

Quite the opposite. If you look at the holdings of the Canadian pension plan in the private equity sphere, you will see that they mainly invest internationally and particularly in the United States.

I think that's true of investors in general though.  I know that in the last two years, I've had my investment profile tilted specifically away from Canadian options and towards the US, and that's worked out incredibly well for me. 

As a sidenote, having Trump elected president may have the effect of keeping more startups on this side of the border because he's just gonna make it so damn difficult for people to have cross  border interactions.

It might become more difficult to move people around, but money and IP will still flow.  And tech is something that is uniquely well-suited to remote work.  Even then, given the kinds of people that Trump has surrounded himself with, I wouldn't be surprised to see the tech industry retain some sort of privileged pipeline for their worker imports. 

First, Welcome Back!

And, yes, that is the point I am making - our Pension Funds, with the exception of Quebec, don't serve local funding interests.  They are bound by law to act in the best interest of the beneficiaries of those Plans.

On your second point, I know of a few examples of companies in the technology space thinking about how they are going to try to overcome the imposition of Tariffs and Border Bans.  There are a not insignificant number of people of the Muslim faith working in Tech and Tech adjacent companies in Canada (and the US for that matter).

[Neil]

Thanks. 

I know there's a lot of furious work going on right now trying to figure out what the next administration's policy is going to be and how to deal with it.  That said, the US capital markets are just so abundant that even if Trump's policies start locking people out, the case for Canada-centric tech is still going to be challenging.  My own experience is that it can be difficult to convince some American lenders to deploy capital outside the US (although obviously there are plenty that not only will do so, but specialize in it). 

[crazy canuck]

Thanks. 

I know there's a lot of furious work going on right now trying to figure out what the next administration's policy is going to be and how to deal with it.  That said, the US capital markets are just so abundant that even if Trump's policies start locking people out, the case for Canada-centric tech is still going to be challenging.  My own experience is that it can be difficult to convince some American lenders to deploy capital outside the US (although obviously there are plenty that not only will do so, but specialize in it). 

Yes, I agree with all of that.