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Pension fund CDPQ plans to pour $12bn into European and UK assets

One of Canada’s largest pension fund managers has unveiled plans for a C$15bn ($12bn) spending spree on private assets in the UK and Europe in a significant expansion of its efforts to drive up returns offshore.

Caisse de Dépôt et Placement du Québec (CDPQ), the C$400bn global investment group, told the Financial Times that it plans to deploy around those funds to the region over the next four years, with the UK standing out because of its “pro business” stance.

The investment manager’s allocation to Europe stands at roughly 14 per cent of its international portfolio and is “concentrated in the UK and France,” Charles Emond, president and chief executive of CDPQ, told the Financial Times in an interview.

“We anticipate growing this figure in the coming years mainly due to opportunities we see across Europe for private investments in our sectors of expertise and interest, including financial services, financial technology, private credit, infrastructure, real estate, healthcare and the energy transition,” Emond said.

CDPQ, which invests on behalf of pension and insurance plans with millions of members and policyholders, said it will continue to invest in the UK and France, but was also “looking closely” at other European countries such as Germany, Spain and those in the Nordic region. Over six months to the end of June this year CDPQ posted a return of 5.6 per cent, above its benchmark index’s 4.4 per cent return.

As part of its plans to bolster its European portfolio, the group expects to boost the size of its London team from 40 to up to 70 over the next year and a half. “Europe generally provides opportunities but the UK (with C$22bn of investments) is at the centre of all of that,” added Emond.

CDPQ revealed its European ambitions as cash-strapped governments around the world court foreign capital in an effort to tap finance for infrastructure programmes and fund their switch to low carbon economies.

Emond was one of dozens of global asset management leaders who attended a UK government investment summit in London last week hosted by Boris Johnson, prime minister. “I must say I was impressed with the sales pitch,” said Emond. “They really stand out as pro-business.”

He added: “I think the UK is positioning itself as a leader in sustainability and sustainable investment.”

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CDPQ is also one of the biggest investors in the world in renewables, such as wind farms and solar power — areas the UK and other governments see as prime targets for private investment.

In September, CDPQ announced plans to accelerate its climate strategy by taking measures including offloading oil producers from its portfolio by the end of 2022 and holding C$54bn of green assets by 2025.

Emond said it was getting harder to find green assets at a good price: “ESG inflows is record on record, so buying existing renewable assets you are paying through the nose,” he said.

Similarly, he said infrastructure was “a crowded space” with supersized institutional investors, including Australian and Dutch pension funds, vying for the same deals. Around C$150bn of the C$400bn portfolio is in assets that do not trade on public exchanges including private equity, real estate and infrastructure.

As part of its global investment ambitions, CDPQ also plans to increase its exposure to China from around 4 per cent of its overall portfolio at present to 5 to 10 per cent in the years to come. Around three-quarters of that slice is in public equities, with smaller allocations to private equity and real estate.

China is under increasing focus over its human rights record, but Emond said the investment could square with the fund’s ESG principles. “I understand and acknowledge the broader social issues but the reality is there’s [a] way to make responsible investing in China in some companies but you have to be selective,” he said.

A decade ago the fund was two-thirds invested in Canada and a third the rest of the world, with that proportion now flipped and “we are continuing on that trend because you have to be diversified”.

“There is much capital chasing the same assets. You got to be smart about what you buy where you buy.”

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