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Ontario Dreams of Creating Two Mega Pension Funds

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Dwight Duncan

Dwight Duncan

The Canadian province of Ontario is debating the development of two mega pension funds to manage the retirement savings of public sector workers. To be clear, no formal policy decisions have been made by Ontario officials. In theory, the two mega funds would manage C$ 60 billion in pension assets, with one managing C$ 46 billion. These proposed funds would rank behind the massive Ontario Teachers’ Pension Plan (OTPP) and the Ontario Municipal Employees Retirement System (OMERS).

Upon hearing the news, some pensioners and labor groups in Ontario are pushing back. Many of the pension plans are underfunded and believe mashing them together won’t fix insolvency issues. In addition, some pensioners may have to contribute more. On the other hand, some people agree that consolidation can work, especially if you look at OMERS and OTPP’s investment returns compared to smaller pensions.

In the past four years, many Canadian public fund investors began modifying investment strategies to cope with a low-yield environment, thus embracing alternatives like real estate, infrastructure, and private equity. Higher interest rates have been scuttled away with easy money policy actions by the European Central Bank and the Federal Reserve.

Pension expenses are exerting unduly strain on government finances.

A pooling of assets, similar to what OMERS and OTPP accomplished could be a model to reduce administrative costs and have stronger purchasing power when it comes to finding investment managers or assets. Investing in real estate and private equity, especially on a direct basis requires substantial in-house capabilities. Smaller public funds do not have the scale to develop these systems, thus relying more on consultants and external managers. In addition, smaller funds in Canada have been slow to make the change, due to the challenge of finding suitable alternative investments and monitoring asset performance.

Funds and Ownership, KKR Partners with Shinhan Financial

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South Korean financial giant Shinhan Financial Group Co., Ltd. reached a preliminary agreement with KKR & Co. to form a series of global buyout funds that could raise up to 5 trillion KRW. KKR and Shinhan signed a Memorandum of Understanding (MoU) in Seoul in early October. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Norwegian Government Recommends SWF Remains at Central Bank

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There was speculation that Norway Government Pension Fund Global (GPFG) could be managed outside of Norges Bank. The Norwegian government shot down this idea and recommended Norway’s GPFG remain in Norges Bank. This recommendation came in the form of a white paper submitted to the Norwegian Parliament, Stortinget.

Norway’s Minister of Finance Siv Jensen, commented in a press release, “The Government proposes a new and modernised governance structure for Norges Bank. Moving forward, this new structure lays the foundations for the sound management of the central bank and of the GPFG.”

Some Central Bank Recommendations

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Invesco Buys OppenheimerFunds for $5.7 Billion

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Invesco Ltd. signed a deal to acquire OppenheimerFunds, Inc. from Massachusetts Mutual Life Insurance Company (MassMutual). In turn, MassMutual and the OppenheimerFunds employee shareholders will receive a combination of common and preferred equity consideration, and MassMutual will become a significant shareholder in Invesco, with an approximate 15.5% stake. This strategic transaction will bring Invesco’s total assets under management (AUM) to more than US$ 1.2 trillion. The transaction is expected to close in the second quarter of 2019, pending necessary regulatory and other third-party approvals. The transaction gives Invesco access to more third-party distribution platforms.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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