The federal government’s promise to encourage Canadian institutional investors to invest more domestically is taking shape with two key initiatives found in the 2024 budget.

The first involves the creation of a working group led by Stephen Poloz, former Governor of the Bank of Canada, to explore domestic opportunities for Canadian institutional investors in various sectors, including digital and physical infrastructure, artificial intelligence, airport facilities, venture capital and residential construction. In tandem, the group will consider removing the ‘30 per cent rule’ for domestic investments, which restricts Canadian pension funds from holding more than 30 per cent of the voting shares of most corporations.

Read: Feds seeking to boost domestic investments by Canadian institutional investors: budget

The second initiative involves amendments to the Pension Benefits Standards Act requiring large federally regulated pension plans to disclose their investments by jurisdiction and asset class within each jurisdiction.

But looming over the working group’s task is a fundamental issue. “It will be very difficult to define what amounts to investment in Canada,” says Jeffrey Sommers, a pensions, benefits and executive compensation partner at Blake, Cassels & Graydon LLP. “There are many companies that have headquarters in Canada, but do a great deal of business elsewhere, and vice-versa.”

Also up in the air is the extent of investment organizations’ participation in the process, as well as uncertainty over how large a plan would have to be, so as to come within the scope of the working group’s recommendations.

Read: Feds consider end of ‘30% rule’ for pensions, propose EI adoption benefit: fall economic statement

The concept of encouraging investments in Canada isn’t without controversy. “Many pension funds maintain that they have substantial funds invested in Canada already, especially in terms of Canada’s [gross domestic product] relative to global GDP,” says Sommers.

There are also concerns about the availability of domestic investment opportunities that match institutional investors’ needs. “Pension plans deal with long-term arrangements for people’s lives and so require stable investments with stable long-run returns. There’s just so many of these types of investments in Canada, which forces the funds to find suitable investments elsewhere.”

Getting those steady returns, Sommers adds, is critical because pension payments have a huge effect on Canada’s economy. “Without them, companies may have to contribute more or benefits could trend lower.”

Read: Feds consider end of ‘30% rule’ for pensions, propose EI adoption benefit: fall economic statement

There are also concerns about changing or eliminating the 30 per cent rule. “Big plans may be good at running businesses more actively,” says Doug Chandler, an associate fellow of the National Institute on Ageing and a veteran retirement research consultant. “But if we’re talking about these plans taking full ownership of start-ups and shepherding them through the growth process, we’re not going to have the scrutiny that comes with being in the public markets.”

It’s important to remember that plans come in all shapes and sizes, he adds. “They all have different needs in terms of the trade-offs between risk, diversification and return, which, in turn, depend on plan design, size and demographics as well as the sponsor’s capacity for risk, so the government can’t step in and just make decisions for them — that’s their greatest fear.”

Read: PMAC supports elimination of 30% rule but questions disclosure requirement