Thursday, May 11, 2017

PSP Launches a European Growth Hub?

Simon Jessop of Reuters reports, Canadian pension investment manager to expand London operations:
The Public Sector Pension Investment Board, one of Canada's largest pension investment managers, said on Wednesday it planned to expand its London operations, hiring staff and boosting investments.

PSP, which manages C$125.8 billion (71.05 billion pounds) across a range of markets, said it would increase staffing in London to 40 from 28 over the next 12 months. It opened the office in 2015.

The team will focus on private equity, private debt, infrastructure and real estate, PSP said, and help it to boost investments across Europe by 20-30 percent over the next five years.

The move comes despite uncertainty in the City since Britain's vote last year to leave the European Union, and which prompted some banks, insurers and funds to look at opening or bulking up operations elsewhere in the region.

André Bourbonnais, President and CEO of PSP Investments said London had a number of enduring strengths, including its talent pool, legal system and financial infrastructure. "London has a proven record that it can adapt to the future which means it continues to be a global centre of finance."

"Our own approach is to invest for the long term so while there may be uncertainty in the short term we believe in the long term the UK will remain an important global financial hub."

PSP's previous investments in Europe include a private equity investment in clinical pathology laboratory company Cerba HealthCare; a real estate joint venture with insurer Aviva; and its wholly owned airport infrastructure company AviAlliance.

The group said it also planned to develop strategic partnerships in the region. It has previously joined forces with peers including BC Partners, Permira and CVC Capital Partners.

Established in 1999, Ottawa-based PSP Investments manages retirement money for employees of Canada's federal Public Service, the Canadian Armed Forces, the Royal Canadian Mounted Police and the Reserve Force.
Sarah Jones, Ruth McGavin, and Sarah Syed of Bloomberg also report, Canadian Fund With $6 Billion War Chest Picks London for EU Hub:
The Public Sector Pension Investment Board picked London as its European hub and plans to spend as much as 4.6 billion pounds ($6 billion) in the region in the next five years.

The fund, which manages the savings of the Canadian armed forces, the Royal Canadian Mounted Police and the reserves, plans to hire executives for its private-equity and private-debt business, according to a statement on Wednesday. PSP said it’s seeking to raise the number of investment professionals working in London to 40 from 28 within the next 12 months.

London will remain the key financial center in the region despite bouts of uncertainty and volatility following the decision to leave the European Union, Andre Bourbonnais, president and chief executive officer at PSP, said in an interview. The fund manager’s decision to expand in the British capital comes as other parts of the industry shrink. More than a quarter of major U.K. financial-services firms say they’ll move staff or operations abroad or review their domicile because of Brexit, consultants EY said this week.

The U.K. capital “has the financial infrastructure and network that would be hard to replace elsewhere,” Bourbonnais said in London. “We think we can find talent here.”

PSP is building its presence in the European private-debt market, and last year hired former HSBC Holdings Plc executive Oliver Duff to lead the business in London. The firm said it likes to provide about $150 million to $250 million of credit for deals but can offer much bigger loans if needed and will draw on sponsor relationships to source investment opportunities.
Revolvers Available

The firm can offer debt financings ranging from revolving-credit facilities through to preferred equity offerings and can invest in stakes of debt and equity in a single transaction as long as it doesn’t control either, Bourbonnais said. The pension fund targets an internal rate of return, a measure of profitability, of 7 percent to 9 percent from its lending.

For buyouts, “we are seeing higher prices but not yet seeing crazy prices,” the CEO said. “We will remain disciplined where price is concerned but are prepared to pay a little more for assets where we see real value.”

The firm has a positive view on hedge funds, Bourbonnais said. “I think a lot of people have thrown the baby out with the bath water,” he said. “We have a very concentrated portfolio of 10 to 12 managers. We will continue to use them.”

PSP has been trimming its real estate portfolio over the past two years because values look “frothy,” Bourbonnais said. It is still looking at development opportunities but plans to sell some buildings from a central London portfolio that it owns with venture partner Aviva Plc, he said. The fund continues to seek infrastructure investments.
And Oliver Gill of London's City A.M. reports, Canadian pension fund PSP boss Andre Bourbonnais: We've picked London as our base as it'll be Europe's financial heartland after Brexit:
One of Canada’s largest pension fund managers has picked London as its new European headquarters, insisting the UK capital “is and will remain the financial centre of Europe”.

The Public Sector Pension Investment Board (PSP), which serves the Royal Canadian Mounted Police alongside other civil servants and boasts C$125.8bn (£70.7bn) of assets under management, will today launch a hub in Victoria. PSP said the move signals the fund’s “commitment to Europe”.

The president and chief executive of PSP Andre Bourbonnais told City A.M.: “There is a strong conviction within the senior management team and the board that London is and will remain the financial centre of Europe.

"We’re all aware of the possible implications of Brexit. But in our mind with the talent that is here and the fact that London has been the financial centre of Europe for decades, we are committed to it and we think it is the best place for us."

The 28-strong European team will be formed of a mixture of local staff and Canadian ex-pats and will be housed at 10 Bressenden Place.

PSP will leverage London’s talent in private equity and debt investing while harnessing Canadian expertise in infrastructure, Bourbonnais said.

Canadian pension funds are no strangers to the UK with the likes of Ontario Teachers Pension Plan and the Canada Pension Plan Investment Board regularly featuring in deals for airports and other infrastructure assets among others.

PSP has invested in Europe for 10 years from its Ottawa base. It has previously run smaller "business offices" in Montreal, New York, London and Luxembourg.

European investments to date include Cerba HealthCare and a joint venture with Aviva that includes 12 office buildings in Central London.

The fund manages contributions to the pension funds of Canada’s federal public service, the Canadian armed forces, the Royal Canadian mounted police and the reserve force.

Bourbonnais admitted PSP had historically kept itself “under the radar”. He added: “It may have worked when the fund was 30, 40 or 50 billion. Now we are CA$125bn plus if we don’t start controlling our brand, someone else will.”
The Globe and Mail also reports on how PSP is charting an ambitious investment course with European hub.

PSP Investments put out a press release announcing the launch of a European growth hub which you can read here. PSP has definitely shifted its communication strategy to control its brand. It has been a lot more active on social media as evidenced by recent activity on its official Twitter account and on LinkedIn.

In fact, PSP posted a picture of its CEO, André Bourbonnais, inaugurating the London office along with the European team which you can view below (click on images):



These four men above are in charge of PSP's European operations and they will be very busy in their respective areas building alliances with solid partners to invest and co-invest alongside them and even independently invest directly in great deals.

Does it make sense to open up an office in London? Of course it does, especially now given PSP's size. London is the hub of European finance and other large Canadian pensions, like CPPIB, have offices there. You need boots on the ground to build and nurture relationships with strategic partners and to develop specialized platforms.

Back in November 2016, PSP seeded a European credit fund, David Allen‘s AlbaCore Capital, with a $500 million commitment to this platform. Truth be told, when I wrote that comment, I didn't understand what exactly "a platform" consists of.

It's only after I attended a CFA luncheon where PSP's CEO André Bourbonnais was the guest of honor that it became much clearer to me. These platforms consist of writing a very big cheque to a specialized team which covers a highly specialized area and typically the seeder pension is the only investor but sometimes you have other limited partners seeding the same platform.

The obvious advantage is you can negotiate lower fees and equally important, put a lot of money to work right away with a highly specialized team which covers an area that you would otherwise be unable to invest in (private debt in a perfect example but there are platforms in infrastructure, real estate and other areas too).

Remember, when you're the size of a PSP ($125 billion and growing fast), CPPIB, the Caisse and other large Canadian pensions you need to deploy a lot of capital to make the needle move. These platforms allow them to invest a sizable sum relatively quickly.

Also, go back a week where I covered the world according to Ken Griffin, where he stated his fund is only focused on "liquid strategies" and alluded to inefficiencies in European credit markets, stating: "...credit growth in Europe is anemic because their banking system is struggling and it has a very negative impact on their entire economic landscape."

Ken Griffin might not be able to focus and capitalize on illiquid private debt strategies but PSP, CPPIB and others sure can because of their long investment horizon and ability to seed specialized teams through their investment platforms.

And keep in mind, before joining PSP, David Allen was posting eye-popping returns at CPPIB, returns that Griffin and other hedge fund titans can only dream of given their short investment horizon and focus on liquid strategies (the more liquid the strategy, the less risk but also less inefficiencies to exploit which is why smart pensions know how to take smart risks in illiquid markets).

Below, André Bourbonnais, president and CEO at PSP Investments, discusses his decision to expand in London despite Brexit uncertainty. Listen carefully to what he says, he covers this decision in detail.

Update (May 16, 2017): Andre Bourbonnais, chief executive officer at PSP Investments, explains why his firm has chosen London as its European hub, despite the U.K.'s decision to leave the European Union. He speaks on "Bloomberg Markets." See clip below or click here if it doesn't load.

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