Canadian Fund With $6 Billion War Chest Picks London for EU HubBy , , and
PSP investment board plans to hire private-equity executives
CEO: real estate values are frothy; we like infrastructure
The Public Sector Pension Investment Board picked London as its European hub and plans to spend as much as 4.6 billion pounds ($6 billion) in the region in the next five years.
The fund, which manages the savings of the Canadian armed forces, the Royal Canadian Mounted Police and the reserves, plans to hire executives for its private-equity and private-debt business, according to a statement on Wednesday. PSP said it’s seeking to raise the number of investment professionals working in London to 40 from 28 within the next 12 months.
London will remain the key financial center in the region despite bouts of uncertainty and volatility following the decision to leave the European Union, Andre Bourbonnais, president and chief executive officer at PSP, said in an interview. The fund manager’s decision to expand in the British capital comes as other parts of the industry shrink. More than a quarter of major U.K. financial-services firms say they’ll move staff or operations abroad or review their domicile because of Brexit, consultants EY said this week.
The U.K. capital “has the financial infrastructure and network that would be hard to replace elsewhere,” Bourbonnais said in London. “We think we can find talent here.”
PSP is building its presence in the European private-debt market, and last year hired former HSBC Holdings Plc executive Oliver Duff to lead the business in London. The firm said it likes to provide about $150 million to $250 million of credit for deals but can offer much bigger loans if needed and will draw on sponsor relationships to source investment opportunities.
The firm can offer debt financings ranging from revolving-credit facilities through to preferred equity offerings and can invest in stakes of debt and equity in a single transaction as long as it doesn’t control either, Bourbonnais said. The pension fund targets an internal rate of return, a measure of profitability, of 7 percent to 9 percent from its lending.
For buyouts, “we are seeing higher prices but not yet seeing crazy prices,” the CEO said. “We will remain disciplined where price is concerned but are prepared to pay a little more for assets where we see real value.”
The firm has a positive view on hedge funds, Bourbonnais said. “I think a lot of people have thrown the baby out with the bath water,” he said. “We have a very concentrated portfolio of 10 to 12 managers. We will continue to use them.”
PSP has been trimming its real estate portfolio over the past two years because values look “frothy,” Bourbonnais said. It is still looking at development opportunities but plans to sell some buildings from a central London portfolio that it owns with venture partner Aviva Plc, he said. The fund continues to seek infrastructure investments.
— With assistance by Sharon R Smyth