Pensions push back on Liberal government pressure to invest more in Canada

‘… if our own pension plans don’t invest in our backyard, is that sending a wrong signal to international investors?’

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OTTAWA – The Liberal government’s plan to try to get Canadian pension plans to direct more investment in Canada has led to warnings about risking pension returns for political purposes.

In this week’s fall economic update, the government made it clear would like to see more of the trillions of dollars pensions have under management spent at home, although it has not made any moves to require it.

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“Canada is one of the safest and most attractive investment destinations in the world — whether it is for the clean economy and major infrastructure projects, or new housing, or supporting our innovative companies,” reads the fall economic statement. “The federal government believes that continued domestic investments by Canada’s pension funds have the potential to boost Canada’s economy and create good careers for people across the country.”

The statement said government would work with pensions to find and encourage more investments in Canada. The Liberal government also said that it will now require pension funds to publicly disclose their asset mix by jurisdiction.

It also suggested it might lift the restriction that prevents pensions from owning more than 30 per cent of a given corporation, but only for Canadian firms.

“The whole concern is that if our own pension plans don’t invest in our backyard, is that sending a wrong signal to international investors,” said Mahmood Nanji, a fellow at the Ivey School of Business and former associate deputy minister at the Ontario Ministry of Finance. “I suspect the government is hearing this pressure and hence this proposal.”

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Canadian investments abroad have grown dramatically since 2015 relative to foreign investment in Canada. In 2014, about $100 billion more was being invested abroad by Canadians than by foreign investors here, Statistics Canada data show. By 2022, the difference had grown to $726 billion.

The government only has direct influence over federally regulated pension plans, with many of Canada’s largest plans overseen by provinces.

The proposal is just a suggestion and Nanji said he doubts the government would ever go further when it comes to pensions, because of the risk to upsetting returns.

“I don’t think (Finance Minister) Chrystia Freeland or anybody in the federal government would ever suggest mandating any of this stuff. I think it’s more of a sort of gentle nudge.”

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Evan Siddall, the chief executive officer of Alberta Investment Management Corp., (AIMCo) which manages several of the province’s pensions, said the Liberals’ move is a mistake because it pushes pensions away from their current core mandate focused on higher returns.

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“This so-called ‘dual mandate’ would be confusing and would dilute our fiduciary obligation to deliver safe, secure and growing pension investments for the people we serve. Inherently, it asks pensioners to foot the bill for Ottawa’s failure to promote Canadian economic growth and productivity,” he said in an opinion piece in the Globe and Mail.

He said pressure to invest more in Canada is a bad investment strategy and one they do not intend to follow.

“AIMCo does not believe we need to increase our investments in Canada. While our public disclosure makes clear we invest nearly half of our clients’ portfolios domestically, AIMCo must be free to seek investment opportunities by achieving the portfolio benefits of global diversification.”

The largest federally regulated pension by far is the Canada Pension Plan currently, which has $576 billion in assets, with 14 per cent of that invested in Canada. The CPP has a bigger share of its investments in the U.S., Europe and the Asia Pacific region than it has at home.

Michel Leduc, the plan’s global head of communications, said the plan’s investments in Canada, while smaller than other parts of the world, is still significant.

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“Canada is, and will continue to be, a core market for us. While Canada represents less than three per cent of the world’s equity market capitalization, 14 per cent of the CPP Fund invested in the Canadian market, representing $83 billion,” he said in an email. “That our portfolio is, by relative standards, overweight in Canada reflects our deep understanding of and conviction in the Canadian economy and investment landscape.”

Leduc said Canada has become more attractive in recent years, but they have to strike a balance.

“Increasing geopolitical risks over the last half decade have heightened the relative position of stable investment markets such as Canada, even as we continue to think and invest over multiple decades. The attractiveness of the Canadian market as a destination for our capital will continue to be balanced with the risks of investing too much of the CPP Fund in the same country that generates 100 per cent of our contribution inflows.”

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