Pension funds are Canada’s ‘crown jewels.’ Should they invest more at home?

More than 90 executives signed an open letter urging Canada’s finance minister to find ways to force this countries pension funds to invest more heavily in Canadian companies. Chrystia Freeland says she’s open to the idea, but she would likely face stiff resistance from fund managers. David Akin has more.

David Akin
Ottawa
November 18, 2024

Signals that Ottawa wants more domestic investment from Canadian public pension funds are being amplified by some members of the business community who argue there’s more these large pools of capital can do to boost Canada’s economy.

But the pension plans themselves are pushing back against suggestions that anyone in government should dictate how they invest Canadians’ retirement savings.

An open letter sent to Finance Minister and Deputy Prime Minister Chrystia Freeland on March 6 urged the Liberals to amend rules governing pension funds to encourage more Canadian investment. It has been signed by nearly 100 current and former executives from Canada’s business community.

“Canada has great companies, true global champions. These competitive businesses deserve our support, and we must create many more. Increasing investments in Canada should be a national priority,” reads the letter, sponsored by Montreal-based investment management firm Letko, Brosseau & Associates Inc.

The vast majority of the CEOs supporting the push are from the mining and energy sector, which also disproportionately makes up listings on the Toronto Stock Exchange. The list also includes the top executives from telecom giants Rogers Communications Inc. and Telus Communications Inc., grocers including Empire Co. Ltd. and Metro Inc., as well as National Bank of Canada – the sole representative from Canada’s Big Six banks.

Letko Brosseau laments the decline in pension fund holdings that are allocated to publicly traded Canadian firms. Roughly four per cent of Canadian funds’ equity investments were allocated domestically at the end of 2022, down from nearly 28 per cent in 2000, according to Pension Investment Association of Canada data.

This is despite pension funds holding roughly 37 per cent of institutional savings in Canada, according to the letter, putting it on par with Canada’s big banks.

“I think it’s a pity,” Peter Letko, one of the firm’s founding partners, told Global News in an interview last weekend.

“Pension funds have money that is there for the long term. It’s very stable. It can withstand a lot of volatility, meaning it can take on quite a bit of risk.

“It’s just perfect for investing in the equity capital of businesses, and equity capital is what it takes to grow an economy. So seeing this flow away from it has been very disturbing for us.”

The 2023 fall economic statement said the government was planning to “work collaboratively with Canadian pension funds to create an environment that encourages and identifies more opportunities for investments in Canada by pension funds.”

“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 FES said.

Freeland met with executives from Canada’s nine largest pension funds on March 8 in the midst of preparations for the Liberals’ 2024 budget, set to be tabled on April 16.

She told reporters the next day that Canadian pension funds are “one of the crown jewels of our country” and confirmed that she spoke to the fund leaders about how to “encourage” domestic investment.

“We said that we were committed as a government to working collaboratively with Canada’s pension funds to help them find more opportunities to invest here in Canada, our remarkable country,” Freeland said.

Canada’s pension funds among the top in the world
Canada’s public pensions are indeed among the top performers worldwide, according to a 2021 McGill University analysis comparing Canadian funds with their global counterparts.

That report found that Canadian pension funds “came out on top on every metric” including asset performance when compared with 250 funds across 11 countries, the report’s author, Sebastien Betermier, said in an interview with Global News.

Canadian public pension funds have a number of strengths including their independent governance structure that let them operate at an “arm’s length” from government, Betermier said.

Pensions in Canada also largely manage their investments in-house, saving on costly fees, and provide competitive compensation to attract top talent to the funds.