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The $1.5-billion acquisition of European theatre chain Vue Entertainment by two Canadian pension fund managers highlights the struggle of retirement plans to find alternative investments that can replace traditional fixed-income assets.
Ontario Municipal Employees Retirement System, which tried and failed to acquire Vue in 2010, is teaming up with Alberta Investment Management Corp. (AIMCo) to acquire Vue, which is expanding across Europe in a bid to consolidate the cinema industry and increase profitability.
The company will be attempting to mimic the recent success of Canada's Cineplex Inc., which has boosted its EBITDA to $201-million from $132-million in 2007.
The deal highlights a pervasive trend in the pension world, which has seen many funds expand their investment mandates beyond stocks and bonds to adapt to a low interest-rate environment that provides them with scant return for their fixed-income dollars.
To compensate, pension funds are pouring money into alternative investments, a category that includes real estate, infrastructure, private equity and hedge funds. According to Benefits Canada magazine, "the average Canadian pension plan's allocation to alternatives in the last decade has increased from less than 10 per cent to more than 25 per cent."
Scott Barlow is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here to read more of his Insights , and follow Scott on Twitter at @SBarlow_ROB .
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Scott Barlow