The de-Russification of Canada’s biggest public pension plans is nearly complete.
The country’s largest public sector pension fund managers all are planning their exit from investments in Russia after the invasion of Ukraine. The key step many needed to scrub their portfolios was the removal of Russian companies from the world’s major stock indexes on Wednesday.
The Globe and Mail asked the largest Canadian public pension plans to elaborate on their recent statements on Russia and provide more specifics about their holdings, particularly if they held Russian stocks as part of index strategies.
Caisse de dépôt et placement du Québec, British Columbia Investment Management Corp. (BCI), Alberta Investment Management Corp. (AIMCo) and Investment Management Corporation of Ontario (IMCO) have acknowledged or disclosed having about $100-million or more invested in Russia, largely through publicly traded stocks. Healthcare of Ontario Pension Plan (HOOPP) says it had investments of less than $80-million.
Ontario Teachers’ Pension Plan spokesperson Claire Holland said “substantially less than 0.1 per cent” of the fund was invested in Russia. Teachers had $227-billion in assets last June 30.
Canada Pension Plan Investment Board, Canada’s largest plan, with $550-billion in assets, called its Russian holdings “insignificant.” Public Sector Pension Investment Board (PSP) said it “does not have material exposure to Russian investments.” Ontario Municipal Employees Retirement System (OMERS) called its Russia exposure “de minimis,” or minor.
Those investments made up a tiny slice of the plans’ portfolios, which often measure in the hundreds of billions of dollars. Combined, the largest plans in Canada have roughly $2-trillion in assets.
But one-10th of 1 per cent of their portfolios is equal to about $2-billion. That can seem like a lot to ordinary Canadians who have zero tolerance for any balance other than zero in Russian investments.
Most of the plans said they had no direct investments in Russia, meaning they hadn’t made a private investment in a company, or an active choice to hold a Russian stock.
But they still have what are considered indirect investments.
Pension plans engage in index investing, in which they seek exposure to a sector, type of stock or region, and invest passively in an index created by a company that specializes in tracking the world’s equity markets.
Russian stocks – including eight companies that have been on Canada’s trading sanctions list since 2015 – were in many global equity indexes, especially those that track the performance of emerging markets.
The world’s largest index companies have now taken action on Russia, allowing passive index investors, including the pension funds, to sell their holdings.
S&P Dow Jones Indices, which managed nearly two dozen indexes that included Russian stocks, removed all stocks listed and or domiciled in Russia from its standard equity indexes before markets opened on Wednesday. MSCI Inc. said it planned to remove Russian stocks at the close on Wednesday.
For example, the MSCI Emerging Markets Europe Index had 11.28 per cent of its money invested on Feb. 28 in Gazprom, an oil company on the 2015 Canadian sanctions list. Sberbank, also on the restricted list, was 5.64 per cent of the index. All told, Russian stocks, whether on Canada’s restricted list or not, made up 51.8 per cent of the index at Feb. 28.
Some pension plans also had Russian exposure in the portfolios of what are called their “external” money managers. Many funds hire investment firms to engage in a style of investing that they themselves can’t or won’t perform. In most cases, the plans agree to waive the right to pick and choose the external managers’ specific investments.
Indeed, a number of the plans that disclaimed any “direct” investments acknowledged they had economic exposure to Russia via indexes and external managers.
CPPIB, in a statement posted to its website on March 3, did not quantify its Russian holdings. It said it “made a deliberate decision several years ago to avoid Russia as one of our markets. As a result, we have not undertaken any acquisitions in Russia. ... Indirect exposures are insignificant, stemming externally from widely used global indices.”
CPPIB said it “engaged early on with the companies that create these indices” to provide its thoughts on Russia.
In a statement on March 3, PSP said it “does not hold any private direct investments in Russia, with its exposure coming through passive index replication activities and external investment manager activities.” PSP said it had “taken steps” late in February to divest all of its Russian investments and “is committed to exiting this market as soon as market conditions permit.”
In a statement on Monday, Ms. Holland said the Teachers fund “is not a direct investor in Russia, and we have no plans to be while Russia occupies Ukraine. ... We have minimal indirect exposure, substantially less than 0.1 per cent of the fund, via holdings through externally managed investments.”
Ms. Holland said Teachers has no discretion over externally managed positions, but “we proactively engaged managers to divest current holdings and restrict future investments in Russia.”
Responding to The Globe, OMERS said its Russian exposure is because of investing in global market indexes, and the removal of Russian stocks will “bring our de minimis exposure to zero.” OMERS has no exposure to Russia held by external managers and no direct private investments in Russia, spokesperson Neil Hrab said.
HOOPP said in a March 3 statement that it “has no direct exposure to Russian assets and this was the case even before the current crisis.” Spokesperson James Geuzebroek said HOOPP “had small indirect exposure through equity index derivatives – amounting to less than $80-million, or about 0.07 per cent of our total portfolio.” Once the Russian holdings are removed from the external index, HOOPP’s exposure will be reduced “to zero.”
The Caisse said on Feb. 23 in response to The Globe and French-language media that it had sold all its holdings in Russian stocks on Canada’s restricted list. At prices in mid-February, before Russian stocks crashed, its Dec. 31, 2020, holdings in the restricted companies, which it referred to as “index-managed,” were worth nearly $400-million. The Caisse had $419.8-billion in assets on Dec. 31, 2021.
The Caisse’s Russian disposal plan began earlier this year, and it, too, was working with index-fund creators to eliminate its exposure.
AIMCo, one of the first to announce a divestment plan, said on March 1 it will rid itself of its holdings, less than $99-million worth of exposure to Russian securities, or 0.06 per cent of AIMCo’s roughly $160-billion in assets. The Russian investments were externally managed public equities, AIMCo said, and beyond that it “does not have any direct exposure to Russia.”
BCI chief executive officer Gordon J. Fyfe said on March 1 that the manager started selling down its holdings in Russian securities before the invasion, yet still held $107-million worth at the time of its statement. It had also been “working to have Russia removed from all global and emerging market indices.”
BCI, AIMCo and PSP declined to update their public statements, issued March 1 through March 3, when asked by The Globe.
As of March 1, IMCO had about $115-million in direct and indirect positions in Russian securities and currency, which represents 0.16 per cent of its assets under management, the fund manager said in a statement. “With the support of our clients, IMCO will exit its small Russian positions as soon as possible.”
Spokesperson Neil Murphy said “virtually all” IMCO’s exposure “derives from externally managed currency holdings (the largest portion of our exposure), externally directed emerging markets public equity mandates, and public equity and credit index holdings.”
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