PSP charts ambitious investment course with European hub

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The Public Sector Pension Investment Board is ramping up plans for international expansion, opening a London office and charting a more ambitious investment course.

The pension fund said Wednesday that it would launch a European hub to boost the fund's investment exposure to the region, primarily through asset classes such as private equity and debt, infrastructure and real estate. It's the latest effort by PSP to expand to key financial markets beyond Canada, and catch up to other Canadian pension giants that have steadily built beachheads around the globe.

The London office "allows us to have better local knowledge, and better informed judgment, and to have access to transactions where we're closer," said André Bourbonnais, who took over as CEO in late March of 2015 after working at other major Canadian pension funds. "Where we are right now, having a London office is not only a competitive advantage, but it's really to make sure that we're not at a competitive disadvantage here. And finally, it significantly increases the pool of talent where we can recruit from."

The pension fund already has 28 professionals in London working in a building that is majority owned by PSP, and those staff numbers are expected to grow. Globally, PSP manages $125.8-billion on behalf of federal civil servants, and as of the fund's most recent disclosure in March last year, about one-fifth of assets were in Europe.

Cementing a presence in London has become more complicated after the United Kingdom has pressed ahead with plans to withdraw from the European Union. Some of the world's largest financial firms are scanning the horizon for new headquarters and decamping to other cities in Europe as a result of the Brexit vote. That has made some PSP employees nervous, and Mr. Bourbonnais has been trying to deliver the message that the pension fund isn't pulling back from London.

"The first of the challenges is to try to figure out where Brexit is going to land," he said. "I do personally believe London is going to remain the financial centre of Europe, so we are very committed. To use the Goldman Sachs expression: When we come to place, we burn the boat, so there's no coming back."

Mr. Bourbonnais added that the victory of pro-European politician Emmanuel Macron in France's presidential election had also helped reassure people that the EU would endure.

PSP began to establish a presence in London a few months after Mr. Bourbonnais was appointed, and the same year that the fund officially hung out its banner in New York. But PSP wanted to begin building its reputation through deals and partnerships in London before formalizing its commitment to the region – it was also waiting for its new office space to be built.

From an investment perspective, PSP's London office plans to steadily add to its private debt team where it has pinpointed opportunities. A decline in European bank lending since the financial crisis has encouraged new alternative asset managers to enter the space, and PSP sees plenty of runway to invest in businesses undergoing special situations, such as restructurings.

The London hub will also be tasked with carefully monitoring the infrastructure sector particularly in European countries beyond the U.K., where the market has become highly developed and competitive due to an influx of institutional investors.

"I do think that the rest of Europe is a little bit behind," Mr. Bourbonnais said. "As the various governments face pressure in terms of their national debt, I do believe more of those infrastructure assets will come to the market and provide opportunities for us."

Already, PSP is planning its next global lodgement. Mr. Bourbonnais said that an Asian hub is among his top priorities because of the need to have people on the ground that are familiar with the region and its opportunities – and also that are in the same time zone. From abroad, "it's really hard to build those relationships, especially when you have other peers that are that are located at the same place and they can cross the street and meet …."

PSP may also seek to establish a more formal presence in Australia by way of a satellite office focused on asset management.