Stephen Poloz asks pension funds for ‘actionable ideas’ on how to increase investments in Canada

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Former Bank of Canada governor Stephen Poloz has asked pension fund leaders to send him concrete ideas by the end of this week about how to entice their funds to invest more in Canada as an initial step in a process Ottawa launched in its April budget.

Mr. Poloz was chosen last month by Deputy Prime Minister and Finance Minister Chrystia Freeland to lead a working group with a mandate to “explore how to catalyze greater domestic investment opportunities for Canadian pension funds.” The group is a response to a vigorous debate that flared up about whether the largest pension funds are investing enough of their $2-trillion-plus in collective assets in the country.

On May 17, Mr. Poloz sent e-mails via the Finance Department to chief executive officers and board chairs at Canada’s largest pension funds, asking them to send him actionable ideas about how to lower barriers to investment in Canadian assets by May 31, according to three sources with direct knowledge of the e-mails.

The Globe and Mail is not identifying the sources because they are not authorized to discuss the process publicly.

The working group has a particular focus on areas such as digital infrastructure, airports, building new homes and venture capital to back early-stage companies. Several senior pension fund leaders have told Mr. Poloz they are willing to take part in the working group, but he said in his e-mail that for now the group has a single member – Mr. Poloz himself.

“Being a committee of one makes it relatively easy for me to adapt to things as they go,” Mr. Poloz said in e-mails to The Globe, confirming his outreach. “I am trying to keep the ideas tightly focused and deliverable.”

Mr. Poloz told pension fund leaders that while the federal government has been lobbied to make changes that would compel or incentivize pension funds to invest a larger percentage of their assets at home, his mandate is to look for ways to broaden the range of investment opportunities that are available in Canada, and make existing opportunities more attractive to pension funds. The objective is to create a list of potential actions the government could take to achieve those goals, with support from pension fund leaders, possibly before the end of this summer, according to two of the sources.

While Mr. Poloz waits for the submissions from pension funds, he said he has been busy “doing bilateral consultations with people outside of the major pension plans,” most of whom are drawn from his own extensive network of contacts.

“People have been stepping up, from all directions,” he said.

Spokespeople for Alberta Investment Management Corp. (AIMCo), British Columbia Investment Management Corp., Caisse de dépôt et placement du Québec, Canada Pension Plan Investment Board (CPPIB), Healthcare of Ontario Pension Plan (HOOPP), Investment Management Corp. of Ontario (IMCO), Ontario Municipal Employees Retirement System (OMERS), Ontario Teachers’ Pension Plan and University Pension Plan confirmed receipt of the e-mail and said their organizations plan to send submissions to Mr. Poloz.

“I am supportive of the exercise with Mr. Poloz and believe it is a constructive approach to identifying ways to increase the opportunities for institutions like ours to invest in Canada,” IMCO chief executive officer Bert Clark said in an e-mail. “I am optimistic there are win-wins we can identify that will be good for our beneficiaries and good for the country. We are going to roll up our sleeves to help try and identify these things.”

The working group’s next steps have yet to be determined, Mr. Poloz said, and will depend on the input he receives. He told pension fund leaders in his e-mail he will share his early findings with them and may convene a meeting to discuss them.

A spokesperson for Ms. Freeland, Katherine Cuplinskas, said Mr. Poloz’s work is under way and he is working collaboratively with pension plans and other stakeholders to increase domestic investment while respecting the plans’ mandates.

The continuing debate about pension funds’ investment in Canada was sparked by Montreal-based investment managers Peter Letko and Daniel Brosseau, who gathered support from more than 90 top business leaders and CEOs who signed an open letter urging Ms. Freeland to “amend the rules governing pension funds” to boost domestic investment.

Mr. Brosseau, a co-founder of Letko Brosseau & Associates Inc., has highlighted a long-term decline in the proportion of Canadian pension funds’ assets invested in Canada, calling it “a national problem.” He said he does not support compelling pension funds to invest more money in Canada, but has called for changes to tilt investment decision-making in favour of domestic options. “To have such a large pool of savings shifted or directed elsewhere is not good for any economy,” he said in a March interview.

In response, several pension fund leaders have said they are willing to work with government to boost investment opportunities in Canada, but they strongly oppose any more prescriptive rules that would skew decisions about where to invest their members’ money.

On average, the eight largest Canadian pension funds invest about 25 per cent of their assets in Canada, but the proportion varies from fund to fund. CPPIB has 12 per cent of its $632-billion in assets in Canada, as part of a portfolio that spans the globe. That compares with 30 per cent at IMCO and more than 50 per cent at HOOPP.