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Resilience of Large Canadian Public Pension Funds in the Wake of Thames Water Turmoil

DBRS Morningstar published a commentary that focuses on the financial exposures of large Canadian public pension funds and exclusive asset managers in the wake of Thames Water turmoil.

Key highlights include the following:

-- The UK government has begun discussing contingency plans for the potential collapse of Thames Water (TW), which include the possibility of placing it into a special administration regime that could take the company into temporary public ownership and result in financial losses to the current shareholders.

-- Two of the largest Canadian public pension funds and exclusive asset managers—Ontario Municipal Employees Retirement System (OMERS) and British Columbia Investment Management Corporation (BCI)—own approximately 31.8% and 8.7% of the shares, respectively.

-- If the investment in TW results in a financial loss to OMERS, the impact to its credit profile will be immaterial, given its highly diversified portfolio and limited exposure to single names. It is worth noting that OMERS and BCI (although we don’t currently rate BCI) have successful track records as engaged investors.

-- The collapse of TW could potentially lead to reputational risk for OMERS and BCI, and to the consortium of current investors in general, which could limit future investment opportunities in natural monopolies in the UK. This risk is mitigated by their engagement in the ongoing constructive dialogue and recent capital injection. In addition, current shareholders have not taken dividends from TW.