Canadian pensions face new call to invest at home, this time from major business leaders

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Canada’s biggest pension funds have largely rebuffed recent pressure to pour more of their billions of investment dollars into their home market, but a new campaign backed by 90 business leaders including chief executives of some of the country’s biggest companies appears set to escalate the debate.

In an open letter to federal and provincial finance ministers on March 6, the business leaders call for rules and new incentives to reverse a decline in domestic investments to bolster the economy, with a specific focus on the pension giants.

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“Without government sponsorship and considerable tax assistance, pension funds would not exist. Government has the right, responsibility and obligation to regulate how this savings regime operates,” says the letter signed by dozens including BlackBerry Ltd founder Jim Balsillie, Metro Inc. chief executive Eric La Flèche, the CEOs of telecommunications companies Telus Corp., Rogers Communications Inc. and Quebecor Inc., and former Bank of Nova Scotia and Air Canada CEOs Brian Porter and Calin Rovinescu.

Increasing investments in Canada should be a national priority

Business leaders in open letter to federal and provincial finance ministers

“Increasing investments in Canada should be a national priority,” they said in the letter to be published in newspapers including the National Post, Globe and Mail, and Quebec publications La Presse and Le Devoir.

Globetrotting pension funds

The letter suggests Canadian pension funds have reduced their holdings in publicly traded Canadian companies from 28 per cent of total assets at the end of 2000 to less than four per cent at the end of 2023, and that the country’s eight largest pensions have invested some $88 billion in China, more than the $81 billion they have in Canadian public and private companies combined.

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Less investment in Canadian businesses increases their cost of capital, discounts their value, reduces their ability to grow and makes Canada less attractive, the letter said, arguing that more investment in Canada would have “considerable” knock-on effects on the Canadian economy, creating jobs and improving incomes, which would in turn increase contributions to retirement plans.

Montreal-based asset manager Letko Brosseau & Associates Inc., which got the ball rolling on the open letter, made enough of a case last year in pre-budget talks to prompt federal Finance Minister Chrystia Freeland to include a few lines in her 2023 fall economic statement calling for Canada’s globetrotting pension funds to invest more of their $3 trillion in assets in their home market.

At the time, she promised that the government would work “collaboratively” with Canadian pension funds to “create an environment that encourages and identifies more opportunities for investments in Canada by pension funds and by other responsible investment pools, while helping to deliver secure pensions for Canadians.”

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Peter Letko, co-founder of the firm, said one idea they have put forward is to create a capital reserve requirement for pensions that would require them to set aside reserve funds based on the risk of countries in which they invest. This would incentivize investments in a less risky country like Canada, he said. 

“We think that might work. That’s just a suggestion we have,” he said, adding that he thinks the chase for returns outside the country after years of Canadian pensions investing primarily in domestic bonds has gone too far. “We don’t know what the government might finally consider as a way to encourage more Canadian investment.”

‘Creatures of government’

Some have interpreted the push as a call to create a dual mandate for Canada’s largest pensions, such as the one that already exists for the Caisse de dépôt et placement du Québec, which invests to generate long-term returns for beneficiaries, but also to contribute to Quebec’s economic development.

By contrast, the Canada Pension Plan Investment Board (CPPIB) has a sole mandate under its governing legislation of maximizing returns without undue risk.

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Letko said his firm hasn’t expressly called for a wider embrace of a dual mandate, but does view large pensions such as the CPPIB, Ontario Teachers’ Pension Plan and Alberta Investment Management Corp. (AIMCo) as “creatures of government” and separate from corporate pensions that don’t share the same tax benefits or an implied government guarantee.

“We think the government does have some right to have an influence over the regime” in which these large funds operate, he said. “But we’re not suggesting the government tells these pension funds exactly where to invest.”

Pension pushback

Canada’s largest pension funds including CPPIB and AIMCo, pushed back after Freeland appeared to embrace Letko Brosseau’s arguments last fall, arguing that they already invest more in Canada than the country’s position among global capital markets would dictate and should be allowed to invest independently based on returns, not geography.

For example, officials at the CPPIB have said Canada represents about 2.5 per cent of global capital market opportunities, while the fund’s commitment to Canada is generally in double digits. Investing outside Canada also has the benefit of exposing beneficiaries to diversification in terms of geography and a range of factors from immigration and fertility to economic performance, CPPIB officials have said.  

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Evan Siddall, chief executive of AIMCo, said in December 2023 that the fund’s substantial investments in Canada sit around 44 per cent and diversification is a means of mitigating risk. He added that the Canadian government could encourage pension funds to invest more in the domestic market by privatizing airports, toll roads, bridges, ports, and pipelines, the sort of infrastructure investments Canadian pensions invest in internationally.

Privately, some pension executives have suggested Letko Brosseau is trying to boost its own returns by creating conditions in which Canada’s large pension funds are forced to invest in domestic equities markets. 

Letko said that’s not the case, and added that he is not opposed to global investments, which his own firm pushed for when there was a cap on Canadians investing more than 10 per cent of their assets outside the country.  

“Our mandates are international…. We’ve been investing around the world and we want to continue to do that,” he said. “So, no, we’re not doing it because of that. We’re doing this because we see a problem for the Canadian economy.”

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