Bank towers are seen on Bay Street in Toronto's financial district in 2010.Adrien Veczan
The Ontario Municipal Employees Retirement System is tightening ties to its infrastructure division with a name change that underscores pension funds' continued push into alternative investments.
Toronto-based OMERS said Wednesday that it would rebrand Borealis Infrastructure as OMERS Infrastructure Management Inc. It's a small move that highlights the evolution of infrastructure from an experimental, emerging asset class into a critical pillar of not only OMERS's investment strategy, but those of Canada's largest pension funds.
Imprinting "OMERS" on its toll roads, airports and shipping hubs was motivated in part by the fund's desire to connect the investments to future beneficiaries – the more than 470,000 Ontario employees and retirees for which it manages assets and administers pensions. The fund also said the name would help extend its global reach at a time when forging ties with other, often international partners, is an essential way to gain access to larger deals.
"A key part of OMERS investment strategy is owning and managing some of the highest-quality assets in the world. OMERS steady growth over the years, to more than $85-billion in total assets under management, reflects in large part the quality of relationships we continue to build with the global investment community," Michael Rolland, chief investment officer of OMERS Private Markets, said in a statement. His group encompasses infrastructure and private-equity investing.
A huge amount of capital has been set aside by pension, insurance and sovereign wealth funds for infrastructure deals in recent years as an alternative to low-yielding fixed-income options when funding long-dated liabilities. This has contributed to a sharp rise in valuations when governments or other private investors put assets up for sale. Alternative-asset data provider Preqin estimated earlier this year that global infrastructure firms have about $137-billion (U.S.) worth of capital available to put to work, a sum often called dry powder. Half of the fund managers the firm surveyed said asset prices would be the big challenge to overcome this year.
The landscape looked much different when Borealis was created within OMERS in the late 1990s, with sights on helping governments find new ways to pay for infrastructure. The division's first significant investment was a $160-million (Canadian) bond issue to help build 16 schools in Nova Scotia in 1999. At the time, the OMERS fund had about $34.9-billion in assets. In contrast, OMERS had 17 per cent of its $85-billion in assets in infrastructure operations across four continents as of its last annual report.
In the meantime, other pension funds have also made leaps into the asset class. Ontario Teachers' Pension Plan made its first direct investment in 2001 and now has more than 10 per cent of the plan's $172.1-billion in assets invested. Canada Pension Plan Investment Board acquired its first infrastructure assets in 2004 and since then it has grown its exposure to close to 8 per cent of its $326.5-billion fund. And other provincially focused funds such as the Caisse de dépôt et placement du Québec, British Columbia Investment Management Corp. and Alberta Investment Management Corp. have also carved out niches in the space.
All of these funds have ambitions to put more money into infrastructure around the world and several have expressed interest in doing more deals at home, if the federal government should decide to sell assets or launch appealing projects through the new Canada Infrastructure Bank.
Operating with a separate brand had its time and place as OMERS worked the kinks out of its investment model. Borealis had an unsuccessful stint as a merchant bank that welcomed a range of outside investors in the early 2000s, and it was later quietly folded back into the parent fund. In the years since, the fund has found its groove, recently buying London City Airport and the Chicago Skyway toll road along other Canadian pension funds and forging partnerships with international investors in the Middle East and Asia.
OMERS said its investment approach – to buy diversified, large-scale infrastructure – wouldn't change as a result of the new name. The fund isn't planning to rebrand its real estate arm, Oxford Properties Group.