Deputy Prime Minister and Minister of Finance Chrystia Freeland responds to a question during a weekly news conference on Feb. 27 in Ottawa.Adrian Wyld/The Canadian Press
Federal and provincial finance ministers are embracing efforts to spur Canada’s largest pension funds to invest more in the country, but are stopping short of endorsing rule changes advocated by a group of influential business leaders who are pushing for more domestic investment.
On Wednesday, more than 90 chief executive officers at some of the country’s largest companies signed an open letter that urges federal and provincial finance ministers to “amend the rules governing pension funds to encourage them to invest in Canada.”
The letter is the latest salvo in a campaign to push political leaders to use regulations and incentives to steer more of the trillions of dollars that pension funds invest on behalf of retirees into Canadian investments, particularly to public stock markets but also private investments in infrastructure, real estate and other assets.
But it has drawn sharp pushback from some pension executives who argue that any system that directs more investment to Canada would cloud the clear mandate that pension funds have to earn the best returns for their members and pay pensions on time.
Federal Finance Minister Chrystia Freeland and Ontario Finance Minister Peter Bethlenfalvy both said in separate statements that they are eager to see Canada’s major pension funds invest more in Canada, responding to the CEOs’ open letter. And on Thursday, Ms. Freeland met with CEOs from major pension funds in Toronto, as part of previously scheduled prebudget consultations.
“Canada’s pension funds are among the world’s most highly respected investors and provide a secure and dignified retirement for millions of Canadians,” said Katherine Cuplinskas, a spokesperson for Ms. Freeland, in an e-mail. “Our government is committed to working collaboratively with them to find even more opportunities to bring their investment acumen home to Canada.”
Her statement echoes the priorities Ottawa set out in the federal government’s fall economic statement, which promised a collaborative focus on domestic investment, “while helping to deliver secure pensions for Canadians.”
Ms. Cuplinskas also highlighted the Caisse de dépôt et placement du Québec in her statement, “with its strong track record of both delivering excellent returns and contributing to Quebec’s economic development,” as “a good example of how effective this approach can be.”
The Montreal-based Caisse manages $434-billion, of which $117-billion is in Canada and $88-billion in Quebec. It is the only one of Canada’s largest pension funds that has a dual mandate: to earn optimal returns on its investments but also to contribute to Quebec’s economic development.
That comparison could raise alarms among pension executives, however, some of whom privately suspect that double mission hampers the Caisse’s performance. The Canada Pension Plan Investment Board – with a singular mandate to earn a maximum rate of return without undue risk of loss – has averaged a 9.3-per-cent annual return over 10 years. That compares with a 7.4-per-cent return for the Caisse.
There are also fears among some pension fund leaders that new measures to tilt investment decisions to Canada’s advantage would chip away at the independence that has helped make Canada’s large pension funds stable and effective.
The CEO of Ontario Municipal Employees Retirement System, Blake Hutcheson, said the fund manager – which invests $129-billion on behalf of 600,000 Ontario public-service workers – is “dedicated to growing and fiercely defending their retirement savings,” in an e-mailed statement. “We must put members’ interests first and foremost, above those of any self-interested parties with competing agendas.”
Mr. Hutcheson said that roughly one quarter of OMERS assets – about $34-billion – are invested in Canada, including in infrastructure, clean energy, hotels, office buildings and shopping centres, often through direct private investments not available to public-market investors. And he said OMERS has told federal and provincial governments that it is willing to work together to find new investment opportunities – as long as they “meet our required risk and return profile.”
“That co-operative approach is in the best interest of our plan and this nation,” he said. “Any attempt to mandate investments in certain prescribed asset classes or components of our economy would limit our flexibility and make it extremely difficult to continue to deliver on our pension promise.”
Mr. Bethlenfalvy, Ontario’s Finance Minister, said “we agree that Canadian pension funds should invest more at home,” in an e-mailed statement.
“We also understand that pension funds need to make returns that support their pensioners and provide stability for the future,” he said. “That is why our government launched the Ontario Infrastructure Bank that will partner with pension funds and enable Ontario workers to put their pension to work right here at home.”
Ontario announced its provincial infrastructure bank, with $3-billion in initial funding, modelled after similar institutions launched by Ottawa and governments in Britain and California, seeking to use injections of government money to attract more private-sector investment.
Pension fund executives have routinely called for the federal and provincial governments to put more infrastructure assets up for sale, from airports to highways that could be turned into toll roads.
“You’ve got to create the opportunities,” said Jim Leech, former CEO of Ontario Teachers’ Pension Plan, which now manages $250-billion. “It isn’t forcing or enticing people into Canadian investments, it’s providing sufficient good investments in Canada.”
Alberta’s pension fund managers “must make investment decisions that align with the mandate of their clients and comply with investment policies and goals,” said Savannah Johannsen, a spokesperson for provincial Finance Minister Nate Horner in an e-mail.
The open letter was signed by CEOs and senior executives in industries that include auto parts, oil and gas, airlines, telecommunications, banking and grocery retail. It continues a crusade spanning more than two years, led by Peter Letko and Daniel Brosseau, co-founders of Montreal-based investment manager Letko, Brosseau & Associates Inc.
One option put forward by Mr. Letko and Mr. Brosseau – but not necessarily endorsed by the signatories to the open letter – would be to require a pension fund making an investment outside Canada to set aside some money in a reserve. These pension plan reserves would be financially prudent, they said, as they would hedge against risks such as moves in currency markets, and by exempting domestic investments from the same requirement, the policy would make Canadian investments more attractive.
“It’s to introduce some element that they can enter into their calculus that would differentiate between a domestic and a foreign investment,” Mr. Brosseau said in an interview.