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Protectionism a rising threat, CPPIB's Denison says

Canadian Pension Plan Investment Board CEO David Denison


Protectionism is increasingly standing in the way of investors, warns CPP Investment Board chief executive officer David Denison, who also suggests Ottawa clarify Canada's takeover rules.

The comments by Mr. Denison, who oversees the management of $152-billion that will be used to pay retirement benefits to 18 million Canadians, were made in the text remarks to a business audience in Sydney, Australia, Thursday. He said that many governments are blocking deals "at a time when the world arguably most needs to accelerate trade, capital flows and economic activity to stimulate growth."

European antitrust officials blocked a proposed merger between the Deutsche Boerse and the NYSE Wednesday, and Mr. Denison cited Canada's decision to reject BHP Billiton's bid for Potash Corp. and Australia's rejection of a merger between Australia and Singapore's stock exchanges, as recent examples of the growing influence of protectionism. He urged policy makers "to create transparent processes and decision criteria so that there is more predictability of outcomes for investors and corporations.

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"I can certainly say that the presence of opaque policy criteria and decision-making processes absolutely influences where we at CPPIB – and we believe other investors and companies as well – direct their efforts," he added.

Those comments suggest that Ottawa's decision not to clarify the Investment Canada Act could cause foreign investors to back away from deals here.

The Globe and Mail recently reported that the Harper government appears to have dropped plans to clarify the rules for foreign takeovers, a source of frustration for Bay Street advisors and potential investors who are unsure how Ottawa would react if an acquirer were to bid for a major Canadian company.

When the government blocked BHP Billiton's bid in late 2010, the industry minister at the time, Tony Clement, vowed to spell out some principles about takeovers of Canadian companies. He also said he would ask the House of Commons industry committee to review the Investment Canada Act, which governs such deals, and suggest improvements. But neither of those things has happened and the new Industry Minister, Christian Paradis, has said little on the topic.

Mr. Denison also outlined another worry of his these days: that new regulations are pushing many investors, from European pension plans to Canadian insurers, to invest for the short term rather than the long term.

When it comes to pension plans, "the strict solvency rules being proposed within the European Union and contemplated elsewhere, if enacted, will likely materially hinder their ability to make long-term investments," Mr. Denison said. At the same time, mark-to-market accounting rules and other new regulations are having the same impact on insurers.

This, Mr. Denison believes, is a danger to the financial system as a whole.

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"Long-term investors can play an important role in helping to stabilize markets in times of stress – they can act as liquidity providers and counter-cyclical investors in such times to counter-balance the actions of other investors," he said. "They can be the providers of capital for important long-term projects such as infrastructure or the development of new energy capabilities for example."

Mr. Denison urged policy makers to think about the implications of their decisions. "We encourage them to make choices that will maintain more open investment regimes and foster long-term investing," he said.

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