Law Times

Page 10 August 22, 2016 • LAw times www.lawtimesnews.com Governments eye end to ownership restriction BY JIM MIDDLEMISS For Law Times I t could soon be easier for pension plans to invest in shares of individual compan- ies, as both the federal and Ontario governments examine arcane rules that restrict pension plans from holding more than 30 per cent of the voting shares of a corporation. Pension plan investment managers, as well as mergers and acquisitions and pension law- yers, who often jump through hurdles to comply with the re- strictions by layering in other- wise needless entities in order to make deals happen, should wel- come the changes. "The current rule [for pen- sion plans] is that you can't in- vest in an entity where you con- trol more than 30 per cent of the vote to elect directors," explains Randy Bauslaugh, leader of Mc- Carthy Tétrault LLP's national pensions, benefits & executive compensation practice. "We end up putting together structures that allow pension funds to own 99.9% of the eco- nomic value of the entity," he says, but they are limited in their rights to elect directors. The problem, he says, is that "transactions become really complicated." He adds that when Canadian pension plans are involved in international deals to acquire companies or engage in joint ventures with other investment firms and pension funds to ac- quire assets, Canadian lawyers are forced to explain to their counterparts that they "have to have these funky structures to accommodate Canadian pen- sion plan rules." "Sometimes, we don't get invited to the party because it looks like our proposal for how we are going to hold [the as- set] isn't going to mesh with the partners," he says. "It leaves Canadian pension funds at a great disadvantage when bidding on these competi- tive assets that they want to own." John Unger, a tax lawyer at Torys LLP, says eliminating the 30-per-cent rule would "reduce administration costs and make things easier." He adds that there have been occasions where the structures that pension plans need to use "impede" acquisitions in some foreign jurisdictions. It's about "reducing red tape," he says. In the past few years, large Canadian pension plans, such as the Canada Pension Plan Invest- ment Board, the Ontario Teach- ers' Pension Plan and OMERs, have been on an international acquisition binge, spending bil- lions of dollars acquiring for- eign assets and often finding themselves mentioned in M&A league tables for their prowess as deal makers. That was despite the restric- tions being in place. Now, action is underway to examine, and in some cases, remove the rule. (The 30-per-cent rule is part of the federal pension investment rules, which many provinces, including Ontario, have incor- porated into their own pension legislation.) Unger notes Quebec has al- ready passed legislation that ex- empts pension giant Caisse de dépôt et placement du Québec from its rule. In March, the On- tario government announced plans to scrap the rule as it ap- plies to its provincially regulated pension plans and called for comments about the proposed change, which would take ef- fect under Regulation 909 of the province's Pension Benefits Act. Ontario says it wants to "open up new investment opportuni- ties and tap the capacity of the pension sector to contribute more to economic growth." One of the questions Ontario is asking is whether there should be any disclosure requirements if a pension plan exceeds a certain threshold of voting shares and what that threshold should be? In June, the federal govern- ment weighed in with its own consultation on the rules as they pertain to federally regu- lated pension plans. They noted the Organization for Economic Co-operation and Development found Canada is the only major country with an ownership con- centration limit out of the top seven member countries whose institutions hold 90 per cent of pension assets. Moreover, low interest rates are making it difficult to gener- ate returns from passive invest- ments that match pension li- abilities. That is forcing pension plans to seek investments that "can provide strong and steady returns over a medium term ho- rizon." LT FOCUS Randy Bauslaugh says rules that govern the way pension plans can invest make transactions 'really complicated.' Expert guidance on the rules of court Available risk-free for 30 days Order online: www.carswell.com Call toll-free: 1-800-387-5164 In Toronto: 416-609-3800 New Edition Ontario Annual Practice 2016-2017 The Late Honourable Justice James J. Carthy, W.A. Derry Millar, and Jeff G. 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