Canadian pension funds to keep faith in infrastructure despite Thames losses

The Thames Water experience should not deter major Canadian pension funds from infrastructure investment, but will likely cause them to reassess their choices, “including their ownership of regulated utilities in certain jurisdictions”.

That’s according to a commentary note on Thames investors Ontario Municipal Employees Retirement System (OMERS) and British Columbia Investment Management Corporation (BCI) from credit rating agency Morningstar DBRS. The key points included: 

• Notwithstanding Thames losses, overall infrastructure returns have been good, averaging just below 10%. These returns are expected to remain solid. Indeed, OMERS and BCI have increased their allocation to this asset class over the last few years. 

• OMERS’ and BCI’s AAA credit ratings remain unshaken because they have been able to absorb their Thames losses.  OMERS invested in Thames in 2017. Its 31.8% stake was valued at $1.8bn in 2021 but following a number of mark downs was finally written off as worthless in May 2024. BCI’s investment, made in 2006, is smaller at an 8.7% stake. 

Ranuj Kumar, vice president, global insurance and pension ratings at Morningstar DBRS, said: "Investment returns have been satisfactory and there has been no notable reputational risk for OMERS or BCI emerging out of this event. The longer-term investment horizon of the pension funds allows them to withstand short-term market swings without triggering any major rebalancing of portfolios or forced selling of assets.”

Morningstar DBRS said Thames now “appears close to defaulting on its debt payments”. According to a report in The Guardian, Thames has until today [7 October] to agree an extension to a £530m revolving credit facility.