CDPQ’s decision to deploy US$11.2 billion in European private markets via an expanded London-based team follows a trend among Canada’s Maple 8 public pension funds seen in recent years.
The Québecois fund is growing its London office staff from 60 to 100 personnel, according to Pensions & Investments. David Morley, managing director and head of Europe, told the magazine, “the UK is our biggest investment destination outside of North America” with focus on health care, technology and renewable energy. The fund raised its Europe exposure from 13% of AUM in 2017 to 16% in 2022, due to a 54% increase in investments to US$47.5 billion.
“It's really clear that Europe is leading the green debate, so the direction of travel is quite supportive of green assets, green investments. That's not true everywhere in the world," he added.
“We are thinking about the kinds of assets we need to generate the returns. Europe has a long-term growth prospect because of the rule of law, the stability of markets, the familiarity, and private markets are very well-developed, particularly infrastructure compared to other places in the world.”
CDPQ’s shift towards increasing the weight of European assets in the portfolio through private markets is a trend we have seen across the so-called “Maple 8” funds – Canada’s eight biggest funds by portfolio size. Global SWF research finds that over 2017-2022, the Maple 8 funds’ aggregate allocation to Europe increased by approximately US$76 billion to US$219 billion across all asset classes, representing a 45% increase.
More than a third of the increase came from the federal public pension fund CPP Investments as it raised its European holdings by around 52% to US$69 billion, representing 16.0% of AUM – although its allocation to Europe including the UK actually fell from 19.1%.
Ontario funds appeared more reluctant than CDPQ to radically tilt towards Europe, with OTPP’s allocation to the region – including the UK – falling from 15% to 14% of AUM with the portfolio rising just 12% over the five-year period to US$25.5 billion. Other Ontario funds, OMERS and HOOPP, also maintained a consistent exposure of 16% and an estimated 10% respectively over the period, meaning that any growth in their total European assets was in line with their overall portfolio. One of the biggest rises in Canadian allocations to Europe came from British Columbia Investments, which doubled its portfolio to a shade under US$20 billion as it ramped up its asset allocation to the sector from 10% to 14% of AUM.
Real assets have tended to be a prime focus of Canadian funds, with the UK a preferred choice although France has gained far more interest in recent years. Canadian investment is seen in renewables, seaports, airports, oil and gas pipelines, while in real estate there is a strong interest in logistics and offices. In the case of CDPQ, allocations to Europe grew from 14% of its real estate portfolio in 2017 to 17% in 2022, while in infrastructure the exposure actually shrunk from 30% to 19%. The proportion of private equity investments in Europe nudged up from 27% to 30% over the same period,
In private equity, Global SWF’s transactions tracker – which records thousands of investments by more than 200 state-owned investors – has seen a growing interest among Canadian funds in Europe’s tech startup ecosystem, particularly information technology, fintech and e-commerce. More surprisingly, the Maple 8 have been less active in the biotech sector than their Middle Eastern and Singaporean peers, while there has been pullback from the banking and insurance sectors.