Canadian Pensions Target Europe as Trump Shakes Up World Order
Canada’s biggest pension funds increased their ownership of United States assets in recent years to tap into strong economic growth. U.S. President Donald Trump’s agenda now has some eyeing Europe as an attractive spot for capital.
Trump has launched a global trade war without precedent, imposing 10 per cent tariffs on dozens of countries and putting 145 per cent levies on goods from China, while also upending longstanding security and trade alliances with European nations and other allies, including Canada. That has forced countries like Germany to ramp up spending on defence and other areas, which may buoy Europe’s economic prospects over the long run — even if there’s a high level of economic uncertainty today.
“I think there’s been some interesting reinvigoration of the range of possibilities and outcomes that could happen in Europe,” Aaron Bennett, chief investment officer of Ontario’s University Pension Plan (UPP), said. As the continent’s economy moves from “relatively slow growth to higher growth,” certain asset classes may become more appealing, such as infrastructure, real estate and private credit, he said.
UPP is exploring corners of private credit in Europe that are “less tapped and less accessible” by larger funds, said Bennett, whose pension oversees $11.7 billion of assets. He said UPP’s investment team is thinking about certain parts of the asset-backed lending sphere, such as real estate.
Ontario Teachers’ Pension Plan is also hunting for opportunities in Europe, chief executive Jo Taylor said recently.
“I quite like the idea of being brave and bold and investing in areas where other people don’t want to go because that means there’s less competition and potentially the chance to make better choices at lower prices,” he said. “We are looking at places in Europe to invest across all of our asset categories.”
The Teachers’ plan is one of Canada’s largest, with $266.3 billion under management as of the end of December. It had 33 per cent of its assets in the U.S. and 17 per cent in Europe, the Middle East and Africa.
Though private credit has been around for a long time, its growth has been so rapid in recent years — it’s now worth some US$1.6 trillion globally — that parts of it have yet to go through a full credit cycle, UPP’s Bennett said.
“There’s a lot of segments where a lot of capital is rushed into it, but there’s also segments where we’re seeing ongoing fragmentation and really interesting opportunities,” he said.
Established in 2021, UPP serves more than 41,000 working and retired members across five Ontario universities and 14 sector organizations, according to its website. About 42 per cent of the fund’s portfolio was allocated to fixed income as of the end of 2023, while public equities made up around 34 per cent of the portfolio. Private equity and private debt comprised 5.6 per cent and 6.8 per cent, respectively.
Alright, I'll keep my comments short as I've already covered a lot of this in a previous comment on how Canada's $2 trillion pension giants are struggling with Trump's policies.
First, Aaron Bennett, CIO of Ontario’s University Pension Plan (UPP), notes:
“I think there’s been some interesting reinvigoration of the range of possibilities and outcomes that could happen in Europe,” As the continent’s economy moves from “relatively slow growth to higher growth,” certain asset classes may become more appealing, such as infrastructure, real estate and private credit, he said.
What is going on in Europe? Germany’s upper house of parliament recently passed debt reform, €500-billion fund:
Germany’s upper house of parliament on Friday passed a reform of the country’s borrowing rules and a €500-billion ($542-billion) fund to revamp its infrastructure and revive Europe’s largest economy.
The constitutional amendment to loosen the so-called debt brake also allows for de-facto unlimited spending on defence and security.
The upper house of parliament, which represents the 16 German states, passed the bill with the necessary two-thirds majority after Tuesday’s vote in the lower house, the Bundestag.
The conservatives and the SPD party, who are in talks to form a centrist coalition after last month’s election, worked to pass the legislation through the outgoing parliament for fear it could be blocked by far-right and far-left lawmakers in the next Bundestag starting March 25.
Chancellor-in-waiting Friedrich Merz has defended the tight timetable, which angered fringe opposition parties, by pointing to a rapidly changing geopolitical situation.
What this means is Europe led by Germany got the message from Trump, you're on your own and they are spending billions to beef up their infrastructure, defence and security.
Typically in asset management, you want to go overweight regions where fiscal expansion is strong and underweight regions where there's fiscal retrenchment.
Just based on this, you start to understand why money is gravitating away from the US toward Europe this year.
Add to this heightened policy uncertainty because of the tariffs, the way they were rolled out and the continuous mixed signals, and you exacerbate this trend toward Europe and other more stable countries.
In terms of asset classes, every one of them will benefit but I agree with UPP's CIO, Aaron Bennett, infrastructure, real estate and private credit will be particularly attractive in Europe.
OTPP's CEO Jo Taylor was even more broad: “We are looking at places in Europe to invest across all of our asset categories.”
Now, a note of caution.
Trump or no Trump, the US will always remain the engine of global growth and there will always be a strong presence there from Canada's large pension funds.
What is going on in the US now is most unfortunate, Trump is wrecking his own economic agenda and sending the wrong signals domestically and internationally.
Will this continue for four years? I strongly doubt it will continue for four more weeks.
This is why I take all the negativity on US assets and the greenback with a grain of salt, it's a bit overdone in my humble opinion.
Is recession a possibility? Yes, for sure, a recent survey shows more than 60% of CEOs expect a recession in the next 6 months as tariff turmoil grows, and there are plenty of reasons to be concerned.
On Sunday, Bridgewater founder Ray Dalio said he's worried about 'something worse than a recession':
Dalio said five forces drive history: the economy, internal political conflict, the international order, technology, and acts of nature such as floods and pandemics. Trump’s tariffs have understandable goals, Dalio said, but they are being implemented in a “very disruptive” way that creates global conflict.
Here's the beautiful thing about the United States, there are checks and balances, midterms are coming next year, Trump will lose momentum if he continues on this path.
But Ray Dalio is right, they need to tackle major deficits and they need to get heir act together fast.
Below, Ray Dalio, founder of the world’s largest hedge fund, tells Meet the Press that Trump’s economic agenda could lead to a “breaking down of the monetary order” as the president ramps up tariffs on China.
Next, CNN’s Fareed Zakaria, host of “Fareed Zakaria GPS,” shares his take on developments surrounding President Donald Trump’s tariff policies, and why he thinks it’s “getting dirtier fast.”
Third, Scott Galloway, an entrepreneur, NYU professor and co-host of “Prof G Markets” podcast, joins ABC's The View to weigh in on President Donald Trump’s tariffs and makes the case for outsourcing goods (my wife suggested this to me, it aired right before exemptions this weekend).
Fourth, Janet Yellen, former Treasury Secretary, joins 'Squawk Box' to discuss her thoughts on the current tariff regime, if colleagues are calling her to make sense of the moment, and the bond market's reaction to recent news.
Lastly, Treasury Secretary Scott Bessent played down the recent selloff in the bond market, rejecting speculation that foreign nations were dumping their holdings of US Treasuries, while flagging that his department has tools to address dislocation if needed. “I don’t think there’s a dumping” by foreign investors, Bessent said in an interview Monday with Bloomberg Television while on a visit to Buenos Aires, Argentina. He pointed to what he said was increased foreign demand at auctions for 10-year and 30-year Treasury securities last week.
Bessent reiterated his interpretation of the decline being mainly a product of deleveraging. “I have no evidence that it’s sovereigns” behind the drop, he said. “We are a long way” from needing to take action, he said. But “we have a big toolkit that we can roll out” if so. Included in that toolkit is the department’s buyback program for older securities, Bessent said. “We could up the buybacks if we wanted.” Treasuries saw their biggest weekly slide since 2001 last week, alongside a decline in the dollar — which some market participants highlighted as a sign of diminishing international confidence in American assets.
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