The Caisse de Depot et Placement du Quebec headquarters in downtown Montreal on Aug. 16.Christinne Muschi/The Canadian Press
Finance Minister Chrystia Freeland thinks Canadian pension funds should invest more of their depositors’ savings at home instead of in more exotic foreign locations. She has even drawn up a list of Canadian asset classes she wants domestic funds to favour.
“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,” last week’s fall economic statement said. “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.”
Ms. Freeland stopped short of formally proposing a dual mandate for federally regulated pension funds that would require them to both seek out returns and foster domestic economic development. But the wording in the FES nevertheless raised concerns of potential political interference if Ms. Freeland seeks to press them into backing pet projects on Ottawa’s agenda. Some worry that could undermine their independence to the detriment of their depositors.
Still, there is a precedent in this country for the very government-pension fund collaboration that Ms. Freeland is hoping to encourage at the federal level. For decades, Caisse de dépôt et placement du Québec has been a partner of the provincial government in boosting the Quebec economy while aiming for the highest returns on the Quebec Pension Plan assets it manages.
Then premier Jean Lesage laid out the Caisse’s dual mandate in a 1965 speech announcing its creation. The new entity, he said, “must simultaneously be able to satisfy the criteria of suitable profitability and make funds available for Quebec’s long-term development.”
It was not until 2004, however, that the Caisse’s twin missions were explicitly spelled out in legislation. Under the law, it must seek “optimal returns” while contributing to the province’s economic development. Neither goal is to take precedence over the other.
“The current consensus is that the two components of the Caisse’s mission … go together, that is to say they are on equal footing,” a 2015 legislative review concluded. “The Caisse is also of this opinion. It does not see a contradiction between the two aspects of its mission.”
At the end of 2022, the Caisse had $78.4-billion, or 19.5 per cent, of its $402-billion in net assets invested in Quebec. It aims to have $100-billion invested in the province by 2026. The Canada Pension Plan Investment Board had about $80-billion, or 14 per cent of its $570-billion in net assets, invested in Canada at its March 31 fiscal year-end. Proportionally speaking, the Caisse is far more invested in Quebec than the CPPIB is in Canada.
The CPPIB has outperformed its Quebec counterpart with a 10-year annualized net return of 10 per cent, compared with 8 per cent for the Caisse. But the gap cannot easily be blamed on the Caisse’s heavier weighting in Quebec. Besides, the Caisse beat the 7 per cent generated by its global benchmark portfolio. That 1-per-cent difference was worth $30-billion in value added.
During the 1980s and 1990s, the Caisse was often seen as too overtly nationalist in its investment posture. But that has been less the case in recent years. Its decisions to invest in local companies are now depicted as strategic bets in innovative firms that will help Quebec’s economy thrive in the future. Think Hopper, the online travel company of which the Caisse was an early backer.
To be sure, the $3.2-billion the Caisse put up to back Quebecor’s takeover of Videotron in 2000 – and thereby block Toronto-based Rogers Communications from acquiring the homegrown cable giant – produced a meagre annual return of 2 per cent by the time the Caisse sold its stake in Quebecor Media in 2018.
Still, the deal ensured Quebec retained a major player in the strategic telecommunications sector and positioned Quebecor to become a fourth national wireless provider with the $2.85-billion purchase this year of Freedom Mobile. Quebeckers have also paid among the lowest wireless rates in Canada thanks to Quebecor’s aggressive pricing packages.
These days, the Caisse has become the Quebec government’s go-to partner in developing public transit. After the previous Liberal government handed it the reins to build, own and operate the $8-billion Réseau Express Métropolitain (REM) light-rail transit system in Montreal, Premier François Legault recently called on the Caisse to draw up plans for a new transit project for Quebec City.
Public transit could be among the possibilities Ms. Freeland has in mind as Ottawa commits to working “collaboratively with Canadian pension funds to create an environment that encourages and identifies more opportunities for investments in Canada by pension funds.” Whether her plans could include privatizing Canada’s airport authorities – an idea studied but rejected by her predecessor, Bill Morneau – remains to be seen.
Most pension funds would likely not even need any arm-twisting to bid on a piece of a Canadian airport. It could even be the beginning of a beautiful relationship with Ottawa.