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Going global: Pension funds on the prowl Add to ...

The calls rang in from all corners of the globe.

Corporate giants and investment firms with assets to unload wondered whether Canada’s largest pension plans might want to take a look. And they did much more than that.

The country’s largest pension plans poured more than $60-billion (U.S.) into assets such as student housing, toll roads and public companies last year. They teamed up with other international heavyweight investors to increase exposure to infrastructure, real estate and private equity at a time when competition for real assets is stiff. And investment banks are paying close attention.

“Part of it is it’s a systematic strategic focus of the organization, and part of it is the market conditions right now are very favourable,” Mark Wiseman, chief executive officer of Canada Pension Plan Investment Board, said of the increasingly important role private-market assets play in the fund’s portfolio.

As commodity woes and concerns about global growth churn markets and put strain on some large competitors, Mr. Wiseman said the fund is even better positioned to make deals in the coming year.

“As we move into these volatile times … if we were farmers, this is planting season for CPPIB,” he said.

A decade ago, pension funds were on the fringes as a flood of mining and private-equity deals took centre stage, leading to a then-record $230-billion in mergers and acquisitions in 2006. That year, pension funds were responsible for just three of the top 20 deals, worth a combined $7.73-billion.

But many plans have swelled since then – the largest 10 plans now have nearly $1.2-trillion (Canadian) in assets under management. And in 2015, pension funds were a part of seven of the top 20 deals valued at $41.2-billion (U.S.) in total.

Years of swift growth has meant that pension funds are being treated differently on the world’s stage, and at home.

“When I think about when I started my own career, I think about the pillars of what we described as ‘industry’ at the time,” Michael Latimer, chief executive officer of Ontario Municipal Employees Retirement System, said in a recent panel discussion. “They were the banks, the trusts, the investment banks, the lifecos – but frankly, the pension community really wasn’t something you were familiar with.”

Now, many of those players have consolidated, and Mr. Latimer said it’s easier to see the role that major pension plans play as part of the financial community.

“The size of the pools of capital that we are today, the things we do, how we employ people, how we invest – it’s been quite a significant change,” he said.

Canadian investment banks have made adjustments to better serve these deal makers as they have grown and shifted focus internationally.

“The pension plans have really changed the game here,” said Paul Farrell, head of Canadian investment banking at CIBC World Markets. One example is real estate, where 20 years ago, properties were in private hands and bank-financed, but now pension plans own many of the best assets in the country, he said.

Mr. Farrell is currently eyeing opportunities to work with the pension funds on their “relationship investments” – minority equity interests taken in public companies with the goal to transform the businesses. When that transformation comes in the form of a major acquisition, banks can step up with backing from the capital markets.

Many investment bankers are calling for a more active M&A environment as strong and weak companies in the natural-resource sector merge. At the same time, some large pension funds have expressed interest in looking to the oil patch for deals. “And if the cheques are large,” Mr. Farrell said, there may need to be a combination of the capital markets and cornerstone pension investors. “That’s a pretty powerful duo,” Mr. Farrell said.

Lucky Seven Largest Pension Plan Deals in 2015*:

ANTARES

Pension Plan: Canada Pension Plan Investment Board

Total Deal Value: $12-billion, including a $3.85-billion equity stake

What they got: General Electric Co.’s private-equity lending business, which targets smaller companies in several industries. The pension plan had been watching for business opportunities in this space for several years, and seized on the chance to avoid having to build operations from scratch.

TRANSGRID (99-year lease)

Pension Plan: Caisse de dépôt et placement du Québec

Total Deal Value: $7.4-billion

What they got: Long-term control of about 13,000 km of the electricity transmission network of the state of New South Wales in Australia, along with investment partners. These high-voltage power lines reach economic and political capitals in the country and help diversify the pension plan’s assets by geography.

FORTUM DISTRIBUTION AB

Pension Plan: Ontario Municipal Employees Retirement System

Total Deal Value: $7-billion

What they got: A 50-per-cent stake in the second-largest electricity distribution business in Sweden, alongside some local pension plans.The solid regulatory environment and OMERS’ goal to increase its exposure to infrastructure were driving forces behind the deal, along with the relative scarcity of big, desirable electricity assets. The business has since been renamed Ellevio.

HUTCHISON 3G UK HOLDINGS (CI) LTD.

Pension Plans: Canada Pension Plan Investment Board and the Caisse de dépôt et placement du Québec

Deal Value: $4.8-billion

What they got: A slice of a major U.K. telecom business. Hong Kong billionaire Li Ka-shing’s firm Hutchison Whampoa Ltd. bought U.K. telco O2 for £9.25-billion to merge it with his existing telecom operator Three UK, but he needed some investment partners to get the deal done. Two Canadian funds stepped in, along with some other investors, to acquire one-third of the merged company. The deal was a chance to cozy up to a new investment partner with a global network.

INFORMATICA CORP.

Pension Plan: Canada Pension Plan Investment Board

Deal Value: $4.7-billion

What they got: To privatize a growing big data company alongside a partner. The deal saved Informatica from a fight with an activist investor. The California-based software developer helps other companies make their data more useful.

SKYWAY CONCESSION CO. LLC

Pension Plans: Canada Pension Plan Investment Board, Ontario Municipal Employees Retirement System and Ontario Teachers’ Pension Plan

Deal Value: $2.8-billion

What they got: The Chicago Skyway Toll Bridge System, split three ways. The pension plans jointly acquired a 88-year lease of the well-established system that connects downtown Chicago and its southeastern suburbs.

HERITAGE ROYALTY LP

Pension Plan: Ontario Teachers’ Pension Plan

Deal Value: $2.6-billion

What they got: A portfolio of land and oil and gas royalties in Western Canada, sold by Cenovus Energy Inc. for some badly needed cash. Teachers said its “opportunistic” deal had secured a steady stream of the company’s future revenues.

*All deal values in U.S. dollars.

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