Prime Minister Justin Trudeau, left, and Deputy Prime Minister and Minister of Finance Chrystia Freeland make their way to the House of Commons to present the Fall Economic Statement on Parliament Hill in Ottawa, on Nov. 21.Spencer Colby/The Canadian Press
Ottawa wants Canadian pension funds to invest a larger share of their assets in Canada and is promising measures to make it a more attractive option, as advocates for raising domestic investment have clashed with pension managers intent on guarding their independence.
The federal government pledged in its fall economic statement on Tuesday to “work collaboratively” with Canadian pension funds to create an environment that encourages them to put more of the trillions of dollars of assets they collectively manage to work domestically.
Ottawa gave few details about how it plans to do that. But its decision to add pension investment to its priorities comes after lobbying from investment industry professionals who argue pension funds have underinvested in Canadian public markets, sapping precious capital from the country.
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That has put pension fund managers on guard. Some are warning against heavy-handed measures that could undermine their discretion to seek the best returns for pensioners wherever they can find them, and to manage risks from overconcentration in any particular market.
On Wednesday, an executive at the Canada Pension Plan Investment Board (CPPIB), which has 14 per cent of the $576-billion in assets in Canada, said the fund would welcome broad policy measures to make the country more competitive at attracting long-term capital.
“Countries are competing for that,” said Michel Leduc, CPPIB’s global head of public affairs and communications, in an interview. “You’ve got to fish where the fish are. You’ve got to make it attractive to them. ... [Canada is] already an attractive place to invest. How do we make it even more so?”
Others are more wary of Ottawa’s intentions. Alberta Investment Management Corp. (AIMCo) chief executive officer Evan Siddall said a key element of Canada’s pension fund model “is independence from political influence of any kind, or even the perception of it,” in an e-mailed statement.
AIMCo, which manages $146-billion for the province and has 43 per cent of its investments in Canada, is pursuing large-scale infrastructure investments around the world, he said. If Canada’s government opened up similar assets that it owns to private investment, it “would be a constructive demonstration of Ottawa’s desire to increase pension fund investments in Canada.”
In late September, Mr. Siddall used a speech to confront calls for more domestic investment from Canadian pension funds with a blunt warning: “The pension savings of Canadians is not our nation’s piggy bank,” he told an audience at the Canadian Club Toronto.
The government said Tuesday it will “explore” removing a rule that caps Canadian pension funds’ investments in most corporations at 30 per cent of voting shares, to make it easier for them to take large, controlling stakes. And it called for pension funds to more consistently report how their investments are spread across countries and asset types – details several of the largest plans already disclose.
Among the most vocal advocates for boosting Canadian pension-fund investment in domestic stock markets is Peter Letko, the veteran fund manager who co-founded Montreal-based Letko Brosseau & Associates. He has lobbied federal and provincial officials with presentations that show publicly traded Canadian stocks make up just 4 per cent of Canadian pension funds’ total assets, down from 23 per cent in 1990, according to the Pension Investment Association of Canada.
Some of those dollars have since moved abroad. But pension funds have also shifted more assets out of publicly traded stocks and bonds and into private assets such as real estate, infrastructure, private equity and private loans.
Ottawa’s announcement is “just the first step” toward increasing pension-fund investment in the country and “there is work to be done,” Mr. Letko said in an interview.
Pension funds have had “some general conversations” with Ottawa, Mr. Leduc said, but are awaiting details about how specific policies could be tweaked to make domestic more investment “commercially viable.”
“We’re not concerned about any heavy-handedness” from federal officials, he said.
On Tuesday morning, Healthcare of Ontario Pension Plan (HOOPP) chief investment officer Michael Wissell said in a statement that, “all else being equal, we prefer to invest in Canada when the risk and reward are appropriate.”
About $60-billion of HOOPP’s $104-billion in assets are already invested in Canada, Mr. Wissell said, but diversifying its portfolio across different countries “helps mitigate risk” and “enhance returns.”
Many pension-fund leaders are quietly worried that adding more exposure to Canada would increase concentration risks, as the future solvency of plans is already correlated to the country’s demographics, economic growth and immigration policies, among other factors.
“We want to be exposed to a whole bunch of markets,” CPPIB’s Mr. Leduc said.