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Glencore's bid for Teck spurs call for Canada pensions to up domestic equity stake

17th May 2023

By: Reuters

  

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TORONTO - Glencore's hostile bid for Teck Resources has galvanised some Canadian institutional investors, who have lobbied the federal government to push the nation's biggest pension funds to lift their exposure to domestic companies, according to a presentation seen by Reuters.

The previous unreported proposal is an unusual move, but mirrors the broader nationalistic sentiment at display in Canada since the Swiss miner's unsolicited approach for one of the country's top mining firms by market value.

Politicians and business lobby groups have asked the federal government to block the $22.5-billion bid and Ottawa has said Glencore would face rigorous scrutiny.

Canada's large pension funds are globally known investors, managing more than $1-trillion of savings, but their exposure to domestic equities has steadily declined over the past decade since Canadian equity markets represent just 3% of the global equity market. The Canadian pension funds have benchmarked their investments to that level, according to the presentation.

Australian pension funds have invested about 50% of their total assets in domestic equities, according to the presentation.

Last month, Teck pulled its proposal to split the company into separate coal and copper businesses after failing to secure shareholders' support.

China Investment Corp is Teck's single-biggest institutional investor with a 10.3% stake, and Norway's wealth fund, Norges Bank, owns 1.52%, while Canadian pensions together hold 0.78% stake, according to Refinitiv data.

Institutional investors argue, a more influential holding would have helped Teck to pull off its plan and ended Glencore's pursuit.

Peter Letko, vice president of Letko Brosseau, a Teck investor which was in favor of the separation plan, said the absence of Canadian pensions funds' from "critical public companies does not help the domestic economy."

Montreal-based Lekto said he has recently written to the federal government's finance ministry and provincial governments urging pension funds to increase their exposure in domestic market.

The finance ministry did not immediately respond to an email query.

PENSIONS AND POLITICS
Quebec pension fund CDPQ declined to comment on "political and legislation matters." All other pension funds did not respond to Reuters request for comments.

Canadian pension funds represent 30% of the total financial savings of Canadians.

"Given that so much of this capital is directed towards international investment, it risks not contributing to Canada’s economic growth," Letko added.

Not everyone, however, agrees with this approach.

Michael Osborne, a competition lawyer at law firm Cozen O'Connor, said the more you interfere with Canadian pensions' operations, "the more you put pension returns at risk."

"We all know from our own pension savings...putting all of your investments in one country - whether it's Canada or any other country - is a poor investment strategy."

Still, Lekto has found some backers, including Kim Shannon, founder of Sionna Investments and former board member of Canadian Committee for Corporate Governance. Shannon added that Canadian equities have generated better returns with lower risks over the past three decades.

Letko has also found support from some business leaders.

"It is really shameful that two of the biggest pension funds invested in Teck are Chinese and Norwegian," said Pierre Lassonde, a Canadian mining entrepreneur who offered to invest in Teck's coal assets to thwart Glencore's effort. Lassonde is also backing Letko's proposal.

Clement Gignac, a Canadian senator and a veteran economist, said while it is not the "business of politicians to decide which countries do the pension funds invest in," the industry as a whole should improve disclosures about where Canadians savings are invested.

Edited by Reuters

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