"They own assets all over the world, including property in Manhattan, utilities in Chile, international airports and the high-speed railway connecting London to the Channel tunnel. They have taken part in six of the top 100 leveraged buy-outs in history. They have won the attention both of Wall Street firms, which consider them rivals, and institutional investors, which aspire to be like them..."
No, the above isn't an excerpt from an article about some new class of hedge funds.
It's actually from a piece in the Economist about Canada's large public sector pension funds.
The article calls these funds "Maple Revolutionaries" for their willingness to seek out
investment opportunities overseas that offer a reasonable rate of return at an acceptable level of risk.
Many of them have their main offices in Toronto, including the Canada Pension Plan Investment Board, Ontario Teachers' Pension Plan, Healthcare of Ontario Pension Plan and Ontario Municipal Employees Retirement System.
In our recent Ontario PC Caucus policy white paper, titled "Paths to Prosperity: Affordable Energy," we propose why we think these Maple Revolutionaries have an important role to play in Ontario's energy sector.
I can see them, for example, helping shift the power sector away from its traditional reliance on government spending and public borrowing towards more private capital and investor risk.
What if, for example, Ontario Power Generation and Hydro One were opened up to investment, in the form of a partial sale to a consortium of Canadian pension funds?
The benefit for the pension funds is straightforward. They need investment opportunities
that are aligned with their long-term interest of earning stable returns, so they can continue paying pensions to retirees at reasonable cost. Ontario power sector assets could potentially be a good addition to the pension funds' infrastructure holdings.
What the pensions will provide, in return, is a strong push for OPG and Hydro One to be
managed more efficiently. In particular, the pension funds will ensure greater attention is paid to controlling costs and promoting efficiencies.
Right now, there are more than 11,000 people at OPG and Hydro One making more than $100,000 per year -- more than double the number in 2003, despite a significant drop in demand for the energy they produce and transmit across the province. A dose of scrutiny from outside investors on labour costs like these will go a long way to improving how these enterprises are run.
This would be welcome: A recent report prepared for the Ontario Energy Board (OEB), the provincial regulatory body, found that OPG's Pickering nuclear station is among the most poorly run in the world in terms of measures like overall capability and generating cost per megawatt hour.
Following the sale of an equity stake to the pension funds, we could unlock additional value through an offering of shares to other investors.
"Paths to Prosperity: Affordable Energy," emphasizes that, even with this outside investment, the government will continue to play a role in energy policy, albeit a more limited and focused one. The OEB will still be there to make sure power prices are reasonable and fair, for example.
This approach is truly win-win-win -- not only for ratepayers but for taxpayers in the broader sense. Our electricity sector will be better managed by bringing pension fund expertise and private investor discipline to the table -- which will benefit consumers by helping lower costs.
The province's credit rating will benefit, as outside capital reduces the need for Queen's Park to borrow money for energy projects, set against a looming $30 billion deficit and unsustainable $411 billion debt. And Ontario's public sector pensions will receive solid returns on their investments here at home, helping ensure a secure retirement for their hundreds of thousands of members.