People walk to Brookfield Place off Bay Street in Toronto on May 7, 2014.Mark Blinch/Reuters
Brookfield Asset Management Ltd. BN-T has floated an exploratory proposal to launch a fund worth as much as $50-billion that would seek to raise money from major Canadian pension funds and from Ottawa to invest in Canadian assets – but was met with tepid interest, sources said.
In recent weeks, Brookfield floated the idea for such a fund with some of Canada’s largest pension funds, according to four sources with knowledge of the discussions. The talks were preliminary and have not reached a pitch stage, and the proposal is unlikely to get traction, three of the sources said.
The Globe and Mail is not identifying the sources because they were not authorized to speak about confidential discussions.
Brookfield was exploring a plan to raise most of the capital for the fund – likely more than $35-billion – from several of Canada’s largest pension funds. The Toronto-based asset manager would also seek a $10-billion contribution from the federal government, and pitch in as much as $4-billion of its own capital, according to one of the sources.
The proposal is unlikely to get traction as the pension funds have been cool to the idea from the start, according to three of the sources. After Mark Carney, the former central banker who is currently chair and head of transition investing at Brookfield Asset Management, was appointed last week to lead an economic task force advising Prime Minister Justin Trudeau and the Liberal Party, the idea is even less likely to gain steam given the potential for perceived conflicts of interest, the sources said.
The pension funds’ hesitation to embrace the idea stems in part from the fact that raising such a large fund would not expand the pool of large-scale, investable assets in Canada that meet the funds’ risk tolerance for investing pensioners’ money. The largest pension funds, which collectively manage more than $2-trillion of assets, also have their own large and sophisticated investment teams.
Spokespeople for Brookfield and Finance Minister Chrystia Freeland’s office declined to comment. A senior government official said Ottawa did not ask Brookfield to initiate a fund. The Globe is not naming the official, who was not authorized to speak publicly on the matter.
Spokespeople for Canada’s largest pension funds either declined to comment or could not immediately be reached for comment.
The Logic first reported Brookfield’s discussions with pension funds and government about raising a fund.
The proposal Brookfield explored taps directly into a debate about whether Canada’s largest pension funds invest sufficiently in Canada. Earlier this year, Ottawa appointed another former Bank of Canada governor, Stephen Poloz, to lead a federal working group exploring ways to encourage those funds to invest more of their assets domestically.
On average, the largest Canadian pension funds invest about one-quarter of their assets in Canada, though the precise share ranges from 12 per cent to more than 50 per cent at individual funds.
Mr. Poloz asked chief executives and board chairs from pension funds to send him concrete ideas about how to make Canada more investable, and has held discussions with senior figures outside the pension sector.
It is not clear whether Brookfield’s overture to pension funds stemmed from Mr. Poloz’s process. But it is consistent with the type of early-stage discussions that regularly take place between major institutional investors, three of the sources said.
Mr. Poloz declined to comment on the Brookfield discussions, and said in an e-mail that his own work is continuing with meetings to collect ideas and conversations with government “about possible ways forward.”
Brookfield manages more than US$1-trillion of assets, much of it invested in infrastructure, real estate, renewable energy, credit and insurance. Managing a fund as large as $50-billion would not be out of character for Brookfield, which recently raised US$30-billion for its fifth flagship infrastructure fund, but it would still be a huge and potentially lucrative undertaking.
It would also be a significant step for Canada’s pension funds to commit such a huge pool of capital for investment in Canada, but cede control to another asset manager over how it is invested.
It would also require a major financial commitment from Ottawa, which only recently earmarked $15-billion to launch the Canada Growth Fund, managed by Public Sector Pension Investment Board (PSP Investments), which is among Canada’s largest pension funds with $265-billion of assets.