© Copyright 2006 Rogers Publishing Ltd. The following article first appeared in the May 2005 edition of BENEFITS CANADA magazine.
We’ve entered a new era of pension fund investment.

It’s no secret that journalists love bad news. When was the last time you read a headline about a passenger jet that landed safely? Or a politician who didn’t have his hand in an ad executive’s pocket?

No, journalists are a strange breed. We love nothing more than to shock you with grisly details and horrify you with sordid allegations.

That said, this particular journalist couldn’t be more delighted about the recent good news to come out of our nation’s capital—the removal of the Foreign Property Rule(FPR) in the 2005 federal budget.

After all, what more could the incoming editor of BENEFITS CANADA ask for than one of the biggest stories to hit the Canadian pension industry in recent years. It’s akin to Dan Rather anchoring his first newscast on the day of Neil Armstrong’s moon landing.

In the 25 years since BENEFITS CANADA began publishing the annual Top 100 Pension Funds report, a great deal of ink has been spilled about how to survive in a world of foreign property restrictions. While the foreign content rule had been relaxed since it was introduced in 1971—to 20% in the early 1990s from a limit of 10%, and then to 30% in 2000—plan sponsors have been forced to either live with the rule, or look for ways to get around it.

Now that the foreign content limit is on its way out. The question is: How will pension plan sponsors respond?

Unlike Armstrong’s “giant leap for mankind” the transition to a pension world without borders will likely take the form of many small steps.

In this year’s Top 100 Pension Funds report, associate editor Joel Kranc found that, while plan sponsors are reviewing their asset mix in light of the FPR’s removal, they aren’t quite ready for a complete reshuffle just yet. Many have already exceeded the rule through synthetic means. Others are planning to take a measured approach to increasing their nondomestic holdings. Some plan sponsors are also looking at opportunities, such as foreign fixed income, for their pension portfolios.

And the FPR’s removal isn’t likely to bring about a full-scale exodus from Canadian capital markets anytime soon. In fact, as Irshaad Ahmad and Timothy Hicks argue on page 51, there are still many reasons why Canada’s a good place to invest pension assets.

Of course, if Paul Martin’s minority government falls before the budget is passed, the removal of the FPR would fall to the earth along with it.(At press time, the opposition parties hadn’t yet seen fit to bring the government down.)However, it’s difficult to imagine any subsequent government, particularly a Conservative one, reneging on the FPR’s removal.

Now that we’ve entered the FPR-free stratosphere, there’s no turning back. And I’m looking forward to the ride.

Don Bisch

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