Thursday, July 15, 2010

Don Drummond's dire prediction comes true: Flaherty contributes to Canada's "welfare loss".

The TD Bank’s submission to Ralph Goodale in the fall of 2005 arguing against the double taxation of income trusts contained the following warning: “A welfare loss would also be inflicted on Canadians if the pension funds substituted offshore holdings for Canadian income trusts.”

Today’s reality:

Canada's pension funds on overseas asset buying spree
July 15, 2010

Canadian pension funds are crisscrossing the globe with cash in hand in search of assets for revenue to support this country’s aging population.

One place they’re looking is foreign infrastructure assets, according to the Canada Pension Plan Investment Board’s senior vice president of private investments Andre Bourbonnais.

Infrastructure assets - such as electricity generation, water distribution and airports - are easy to operate and maintain, generate predictable cash flows, offer protection against inflation and can be owned for a very long time, Bourbonnais told QMI Agency Thursday.

“There’s not a lot of complexity in operating a toll road for instance,” he said.

Late Wednesday, the CPPIB revived its bid for Australian toll road operator Intoll Group with a $3.5-billion offer. The Sydney-based company also owns a minority stake in Toronto’s 407 electronic toll highway.

In May, the CPPIB snapped up a minority share in two prime Manhattan buildings for $663 million.

And last year it was part of the largest leveraged buyout of 2009 — the $4-billion acquisition of IMS Health Inc, a prescription drug sales data provider.

The Ontario Teachers Pension Plan has also been on a foreign buying spree after recently picking up U.K. state lottery Camelot for $536 million.

The teachers' fund has also tried to up its share of Australian toll road companies Intoll and Transurban in recent months.

And there have been reports the teachers, along with Ontario MunicipalEmployees Retirement System, could be involved in a multi-billion dollar bid for a U.K. high-speed rail franchise.

The CPPIB launched its aggressive infrastructure investment plan roughly five years ago.

“We’ve been looking globally at infrastructure assets,” Bourbonnais said, adding policy conditions in Australia and the U.K. are quite favourable right now.

Bourbonnais said the fund will likely pursue other deals with similar characteristics as Intoll.

“The predictability of the return and long-term ownership of those assets fit well with our mandate,” Bourbonnais said.

The CPPIB has assets totalling $127.6 billion after funds returned to pre-recession levels earlier this year.

Today, the CPPIB receives more contributions from working Canadians than it pays out in benefits. But that is expected to reverse by 2021, when Canada’s workforce is expected to shrink to new lows and the elderly population explodes.

In the 1990s, the CPPIB began to diversify its holdings, moving into equities, public properties then private spaces. Before then, the fund only invested in government bonds.

Today, the CPPIB generally operates with the rationale that the right mix of private assets can perform better than public ones in the long run.


Dr Mike said...

Little Jimmy Flaherty either must have anticipated this result or he was too dense to see what the result of his actions would be.

Either way , money now flows out of the country to find the "best" investments to assure our retirement futures.

As I say , the "best" investments.

It appears that income trusts were that "best" choice.

So much for "ponzi" schemes I guess.

Dr Mike Popovich

Anonymous said...

Meaning its cheaper to buy a offshore Cashflow corp versus a canadian trust?

But isn't true the pension funds are buying these trusts at a 33% discount with Flaherty's tax on trusts?


Brent Fullard said...


Meaning capital will flow to where its needs are best fulfilled.

Canada has a form of prohibition going on, so investors simply take their money elsewhere and grow other economies instead.

Meanwhile, the Pension funds are exempt from this tax if they take these Canadian trusts private (a la OMERs taking Teranet private), which is the equivalent of a 31.5% discount, whereas you and I pay the 31.5% double tax if we hold Teranet in our RRSPs. How's that for fair?

Meaning Flaherty is a moron.

Anonymous said...

I understand Brent now The issue with goodale then was he Was going to decrease pension ownership of trusts.


Brent Fullard said...


Yes that's true what you say about Goodale's mindless move to restrict the pensions from owning trusts.

Just proves that Goodale takes bad advice from Carney no different than Flaherty takes bad advice from Carney.

What do Goodale and Flaherty know about the capital markets?

Virtually nothing, as they are both lawyers with gold plated gov’t pensions. They are as far removed from reality as it gets, which is why some devious Rasputin like Carney is so effective in achieving his nefarious ends on behalf of Goldman et al.