A renewed call for increased domestic investments by Canadian pension plans isn’t surprising amid an ongoing discussion around the role of investment organizations in supporting the economy, says Malcolm Hamilton, a senior fellow at the C.D. Howe Institute.
“I think it’s very natural for Canadian businesses . . . [that] focus on the Canadian economy, not to want to see all [the] big pension funds fleeing the country and investing elsewhere.”
In March, almost 100 Canadian business executives — including representatives from the National Bank of Canada, Quebecor Inc., Rogers Communications Inc. and Telus Communications Inc. — signed an open letter asking federal and provincial finance ministers for support in attracting investments from the country’s largest public pension plans. According to the letter, Canadian institutional investors have reduced their holdings in publicly traded Canadian companies from 28 per cent of total assets at the end of 2000 to less than four per cent at the end of 2023.
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Institutional investors were previously subjected to limitations on investments in foreign assets. After a couple of increases in the cap size throughout the 1990s and the early 2000s, the restriction was removed entirely in 2005. “Obviously the pension funds, from their perspective, would rather be unconstrained,” he says.
While investment categories like technology and pharmaceuticals often require institutional investors to look abroad, Hamilton says Canada offers plenty of investment opportunities in assets like banks, insurance companies, oil and natural gas. “There are lots of good investments in Canada and I would find it very hard to accept that all this money needs to go to foreign markets to find better returns.”
In a previous interview with Benefits Canada, Michael Wissell, chief investment officer at the Healthcare of Ontario Pension Plan, said the investment organization aims for “the right balance” when it comes to assets in Canada and abroad. The HOOPP holds more than $60 billion worth of domestic investments.
“We invest in Canadian assets because they represent good investment opportunities. We know [the] risk profile here [and] understand what’s going on here very effectively. . . . It’s important that we both diversify and find the best risk-adjusted rewards that we can find. And for us that means Canadian investments.”
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In a press release issued last month, the Ontario Municipal Employees’ Retirement System said it supports domestic investments (roughly 25 per cent, or $34 billion, of its portfolio is in Canadian assets) while prioritizing the interests of its plan members, adding it’s in communication with the provincial and federal governments “to work with them to unlock both an environment and specific opportunities that encourage such investments.”
During its 2023 fall economic statement, the federal government said it was considering removing a rule restricting Canadian pension funds from holding more than 30 per cent of the voting shares for most corporations. According to the budget, the decision is part of an effort “to create an environment that encourages and identifies more opportunities for investments in Canada by pension funds and by other responsible investment pools, while helping to deliver secure pensions for Canadians.” The government also said it was considering new measures for large, federally regulated pension plans to provide added disclosures on the locations of their investments.
In an open letter responding to the 2023 fall economic statement, Peter Waite, executive director at the Pension Investment Association of Canada, said any directive from the federal government requiring plan sponsors to a specific investment commitment in Canada would “compromise the integrity of the fiduciary investment process and creates additional risk to Canadian pension plan beneficiaries.”
Instead, he suggested the feds reissue real return bonds, which could help bolster domestic investment from plan sponsors. “The abrupt cessation of new real return bond issuance will over time remove an essential investment vehicle from Canadian pension investment.”
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