The Ontario Teachers’ Pension Plan’s Acquisition of Seven Investment Management
Ontario Teachers’ Pension Plan (OTPP) is making a strategic move by acquiring Seven Investment Management (7IM), a leading UK asset manager. This acquisition signals OTPP’s confidence in a rapidly consolidating sector and its aspirations to become a major player in the UK wealth management industry. With this deal, OTPP plans to drive 7IM’s expansion and explore potential acquisitions, aiming to create a large-scale player with scalable operations and high-quality service.
The Deal Details
Founded in 2002, 7IM manages approximately $21 billion in assets and has established itself as a trusted financial partner for over 2,300 consultancies and 7,000 private clients in the UK. The acquisition by OTPP, which manages the pensions of 336,000 teachers in Ontario, gives 7IM an enterprise value of around £450m. Under the terms of the deal, OTPP will own 90% of the assets, while 7IM’s management will retain the remaining 10%.
The Rationale Behind the Acquisition
The decision to acquire 7IM aligns with OTPP’s long-term investment strategy and reflects its confidence in the future prospects of the UK wealth management sector. Several factors have contributed to OTPP’s interest in this market:
- Pension Reforms: The UK government’s pension reforms incentivize saving, which leads to increased flows of funds into the wealth management industry.
- Wealth Advisor Demand: Wealth advisors are witnessing a surge in demand as individuals seek professional guidance to navigate their financial affairs effectively.
- Demographic Trends: The aging population and changing demographic patterns indicate a sustained need for retirement planning and wealth management services.
With an eye on these favorable factors, OTPP has been actively searching for a UK asset manager for the past three years. This acquisition allows the organization to tap into the expertise of 7IM’s management team, leverage their existing client base, and further strengthen OTPP’s foothold in the UK market.
OTPP’s Commitment to UK Investments
The acquisition of 7IM affirms OTPP’s commitment to the UK market and its confidence in the country’s potential for growth. This move follows OTPP’s previous investments in the UK, including a 25% stake in SSEN Transmission and holdings in London City, Bristol, and Birmingham airports.
Known for its successful investment track record, OTPP manages a diverse portfolio of assets worth nearly C$250 billion ($180 billion). The organization’s investments span public equities, infrastructure, venture capital, and property. This breadth of investment options, along with a focus on delivering consistent returns, has propelled OTPP’s average annual returns to 9.5% since its inception in 1990.
OTPP’s expertise in public sector retirement plan management has made it a significant player in Canada’s public sector pension landscape. As part of the “Maple Eight” of retirement plan investment managers, OTPP collectively manages approximately $1.5 trillion, exemplifying its influence within the industry.
The Consolidating Asset Management Landscape
The acquisition of 7IM by OTPP is part of a larger trend of consolidation within the asset management industry. Research indicates that by 2027, one in six asset managers will either go out of business or be acquired by larger groups. This consolidation is driven by a variety of factors, including market volatility, high interest rates, and fee pressures.
In this evolving environment, 7IM’s partnership with OTPP positions the firm for further growth and provides stability in a challenging landscape. With access to OTPP’s resources and expertise, 7IM can enhance its offerings, explore new avenues for expansion, and navigate potential market disruptions more effectively.
Summary
The Ontario Teachers’ Pension Plan’s acquisition of Seven Investment Management underscores OTPP’s long-term investment strategy, confidence in the UK wealth management sector, and commitment to providing secure retirement options for its members. The deal allows OTPP to capitalize on favorable factors such as pension reforms, increased demand for wealth advisor services, and demographic trends.
By acquiring 7IM, OTPP gains access to a premier UK asset manager with a strong client base and a proven track record in the industry. This acquisition aligns with OTPP’s ambitions to become a prominent player in the UK wealth management industry and builds on the organization’s existing investments in the country. The consolidation within the asset management industry further supports OTPP’s strategic move, adding stability and growth potential to 7IM’s operations.
As the industry continues to evolve, OTPP’s acquisition of 7IM showcases its ability to adapt and identify opportunities for future growth. This acquisition not only advances OTPP’s investment objectives but also reinforces its position as a trusted financial partner and a leader in the pension fund landscape.
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Ontario Teachers’ Pension Plan has agreed to buy UK asset manager Seven Investment Management, as one of Canada’s largest investors is betting on a rapidly consolidating sector.
OTPP is acquiring 7IM, which was founded in 2002 and manages approximately $21 billion in assets, from Caledonia Investments, the companies said Tuesday. The deal gives 7IM an enterprise value of around £450m, according to people familiar with the matter.
The OTPP’s move comes as asset and wealth managers are gaining strength amid rising costs and downward pressure on fees. However, Iñaki Echave, senior managing director of OTPPhe said the fund has spent three years looking to buy a UK asset manager, pointing to several potential favorable factors for the sector.
“Further flows will be supported by pension reforms, wealth advisors are seeing increased demand and demographic trends indicate the government will continue to incentivize saving,” he said.
Following the deal, OTPP will own 90% of the assets while 7IM’s management will own the remainder. 7IM was bought eight years ago by Caledonia, an investment fund linked to the Cayzer family which made its fortune in the shipping sector. Caledonia’s stake in 7IM was valued at £187m as at 31 March.
The Canadian fund already has significant investments in the UK. Last year it bought a 25% stake in SSEN Transmission, a division of Scottish energy company SSE, for £1.5bn. It also has stakes in London City, Bristol and Birmingham airports.
7IM adds to the more than C$10 billion of direct investments OTPP has in the financial services sector, and the asset manager will join its approximately C$60 billion private equity portfolio. 7IM CEO Dean Proctor will continue to lead the company after the deal closes early next year.
“We are well positioned for our next phase of growth and the introduction of a new investor in Ontario Teachers’ is a natural and planned next step in 7IM’s development,” said Proctor. 7IM was assisted by Evercore.
OTPP plans to accelerate 7IM’s expansion, including through potential acquisitions. Based in London and Edinburgh, 7IM manages assets for over 2,300 consultancies and 7,000 private clients in the UK.
Echave said the OTPP could be looking for “bigger targets” within the UK wealth management space. “We have an ambition to build a large-scale player in the industry. . . it is an industry that benefits from scalability and high quality service,” she said.
The OTPP is betting on an industry where smaller companies have struggled in recent years. According to the study, by 2027 one in six asset managers will go out of business or be acquired by larger groups. a report by PwC earlier this year, which cited a mix of market volatility, high interest rates and fee pressures.
The OTPP, which has assets of nearly C$250 billion ($180 billion), manages the pensions of 336,000 teachers in Canada’s most populous province.
The OTPP’s ability to invest in public equities along with infrastructure, venture capital and property has helped the OTPP deliver average returns of 9.5% annually since it was founded in 1990.
His model has been adopted throughout Canada’s public sector, where he is part of the “Maple Eight” of retirement plan investment managers who collectively manage approximately $1.5 trillion.
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