A dismantling of the Dodd-Frank Act by the Trump administration could impact Canada’s major pension funds
With US President-elect Donald Trump restating plans to “dismantle” the Dodd-Frank Act and big banks possibly re-commencing activities that the law has forced them to cease, Canada’s largest pension funds might be under threat, according to a Financial Post report.
The report cited the Canada Pension Plan Investment Board (CPPIB), which led Canadian institutions in setting up private debt businesses in the US shortly after the 2008 financial crisis. Seeing a prospect for healthy returns and increased portfolio diversification, they seized upon the opening left by banks that reined in their lending to shore up capital and re-strengthen their balance sheets.
In an interview with the Financial Post, CPPIB CEO Mark Machin acknowledged that a rollback in regulations could open the doors for competition from the banks, though it would “take some time … for that to happen, and for those opportunities [enjoyed by pensions and other institutions] to disappear.”
CPPIB’s Principal Credit Investments unit posted assets of $17 billion at the end of last year, up from $8 billion at the end of fiscal 2015. “I think we’re probably world leaders… so I think that’s going to continue to throw up opportunities, not just in the US but in Europe and Asia,” said Machin, who declared that the fund would push ahead despite possible threats from Trump.
According to Machin, the Canada pension titan has more than $20 billion in assets in the private debt space. Alberta Investment Management Corporation (AIMCo) invests on behalf of 26 pension, endowment, and government funds, and also has a presence in North America and Europe. PSP Investments, which manages pension plan funds for the Canadian Armed Forces, the Royal Canadian Mounted Police, and the federal public service, also established a private debt operation for US and European corporate borrowers.
Machin said that with Republicans controlling both the House of Representatives and the Senate, Trump has a better shot than his predecessors at implementing his plans. However, David Beattie, senior vice-president in the financial institutions group at Moody’s Investors Service, thinks that banks would not go through the door that a teardown of the Dodd-Frank Act would open “unless the return prospects were very compelling.”
“Most banks that had prop trading and other prohibited businesses have had to go to considerable effort and expense to discontinue them,” Beattie said.
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