How Canada has carried out an extraordinary invasion
As British pension funds suffer in the icy economic climate, their well-run and massively wealthy Canadian counterparts are snapping up British businesses - and they threaten that more is to come.
Mountie mania: O Canada! With glowing hearts we see thee rise...and buy up Britain's firms
The latest target is the £3bn UK electricity distribution network put up for sale last week by energy giant Eon.
Top of the list of bidders is likely to be a consortium including Canada Pension Plan - the fund behind the country's state pension system.
Also last week, Healthcare of Ontario Pension Plan signed a joint venture with the Crown Estate to build a £100m office and retail site on London's Piccadilly Circus. The deal is the Healthcare pension fund's first venture into the UK, but is unlikely to be its last.
And Ontario Teachers' Pension Plan is understood to be looking at a potential bid for financial services website moneysuper market.com. Ontario Teachers made a bid in 2008 but was rebuffed. Now Moneysupermarket founder and 52% shareholder Simon Nixon has said he is open to offers.
Ontario Teachers has assets of £60.8bn. Of this, about £20.3bn is already invested in companies outside Canada and a significant proportion is in the UK.
In March this year it bought National Lottery operator Camelot for £389m and last month it was part of a consortium that bought a 30-year concession to run the HS1 highspeed rail line linking London to the Channel Tunnel. Its partner in the £2.1bn deal was another Canadian public sector pension fund, Ottawa Municipal Employees Retirement System.
Ontario Teachers is the 22nd largest pension fund in the world, outranking any UK fund by nearly 20 places, and is substantially larger than the Shell, BT and Lloyds TSB pension funds.
Canada Pension Plan is far larger, with assets of £128bn. Its UK interests have been slow to develop, but in the past year it has begun to move faster.
It tried to buy the UK electricity network of EDF earlier this year, but was beaten by Hong Kong mogul Li Ka-shing. However, in July engineering conglomerate Tomkins was acquired for £2.9bn by Canada Pension Plan and private equity fund Onex.
Last month, Canada Pension Plan announced its biggest European deal of the year - a 25% share of the £308m Westfield Stratford City project, an east London shopping centre next to the Olympic stadium.
The list of British assets snapped up by Canadian pension funds also includes Associated British Ports, Bristol Airport and Birmingham Airport.
So what lies behind this spending spree? And how is it that a fund such as Ontario Teachers, managing pensions for 289,000 teachers, principals and administrators, both active and retired, has formed such a powerful investment force.
First, the way Canada's public sector pensions are funded differs considerably from the way we do it. Here, workers make payments to fund today's pensioners. When they retire, they will be supported by the next generation of workers. The problem for Britain is that the population is ageing.
But in Canada the main state pensions are partly pre-funded, with the workforce paying into a massive account. This means there is a huge pot of cash to invest.
The Canadian funds have adopted a more adventurous investment strategy, imitating private equity funds, and have benefited from the economic crisis that has hit British firms and the pound, leaving our companies vulnerable to takeover. Pension consultant John Ralfe said: 'Canadian pension funds have a huge pool of assets. The Canadian market is relatively small compared with other areas and so they are looking to expand abroad.'
Until 1990, Canada's pension funds had to invest domestically - often in nothing more exotic than state-issued bonds. When that block was lifted, the cash in the funds was unlocked for international investment.
The other factor has been their active management. Where many pension funds hand control to outside managers, Canada's funds do it themselves.
Ontario Teachers has set up a private equity arm, allowing it to avoid paying the banks' stratospheric fees. So far the returns produced by this strategy have been remarkable - since 1990 they have averaged a return of 9.7% a year.
Jim Leech, president and chief executive of Ontario Teachers, said: 'After our first private capital investment, which was unsuccessful by the way, the board could easily have said this isn't for us. But they understood you sometimes drill dry holes and kept at it.'
The other unusual aspect of the Canadian model is that pension funds often buy whole companies rather than just small stakes, though they adopt a hands-off attitude and let the companies run themselves.
A spokesman for Britain's National Association of Pension Funds said that last year pension funds cut their allocation to private equity and venture capital investments by more than a half. Ralfe said: 'British pension funds prefer to invest through stock market securities rather than direct investments. This is seen as a safer option.'
Canada has also escaped the worst of the financial crisis and its dollar has strengthened against most other currencies.
Neil Petroff, chief investment officer at Ontario Teachers, said: 'The UK is taking time to come out of recession. We aim to buy great companies at a fair price,' he said.
There is a saying that 'teaching is the profession that teaches all the other professions'. Ontario Teachers certainly has a few lessons for British pension funds.
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