Opinion: Canadian pensions funds should invest more in domestic assets to boost the economy

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Shahir Guindi is chair emeritus and partner, Osler, Hoskin & Harcourt LLP, and former chair of the Montreal Chamber of Commerce.

Canada’s eight largest public pension plans, together known as the “Maple 8,” manage a staggering $2-trillion in assets. These funds could play a transforming role in the country’s financial strengthening if their investment is more focused domestically.

But their current impact on Canada’s economic development remains legislatively muted, and largely untapped.

The lone exception is the Caisse de dépôt et placement du Québec.

While the Maple 8 pension funds have various broad mandates beyond just investment for returns, such as incorporating environmental, social and governance factors into their investment decisions, the Caisse stands out as the only Maple 8 pension fund with a legal obligation to actively contribute to the economic growth of its province.

As detailed in its constitutive law, the Caisse’s mandate consists of two key components: to generate returns for its depositors while also fostering economic development in Quebec.

Is such a dual mandate antithetical to a pension fund’s primary returns-driven objective? Not so.

In 2022, despite the difficult market environment (the worst simultaneous correction in stock and bond markets in 50 years), all Caisse asset classes outperformed their benchmarks. As a matter of fact, although the Caisse’s focus on supporting economic development in Quebec could yield outsized exposure to the province, management has highlighted that the long-term returns from these investments have consistently been among the highest in its portfolio.

The Caisse should be used as an example in expanding the mandates of the rest of the Maple 8.

Like the Caisse in Quebec, the rest of the Maple 8 have the human talent and financial and other resources necessary to have a huge impact on the Canadian economy – for all Canadians.

However, to comply with their constrained legislative mandates to achieve direct financial returns on investments, they are cornered into deploying the hard-earned capital of Canadians all around the world. (There are not enough investments of scale available in Canada to allow such big funds to hit their investment targets.)

To the credit of the Maple 8, they have done this well. The most important capital markets participants around the globe know the Maple 8 and covet our Canadian pension dollars for their projects.

But the secondary result: Rather than the Canadian economy benefiting from the full power of the Maple 8 talent and capital, our capital is being deployed all over the world in everything from ports, to technology, roads, airports, real estate, manufacturing, managed third-party funds and much more.

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Canadian pension dollars invested in Canadian equities from 1990 to now have fallen from just under 80 per cent of their equity portfolios to just under 25 per cent now. Imagine if a larger part of the Maple 8 trillions was deployed in Canada!

Canada’s housing, health care, infrastructure and climate challenges have become front page, everyday stories. These are problems that neither government nor business alone have the capital to resolve. In addition, we repeatedly hear of Canada’s persistent lag in productivity and competitiveness. Would not the deployment of more of our Maple 8 capital and talent in Canada nourish the remedies long sought for these macroeconomic ailments?

To have the same domestic impact as the Caisse does in Quebec, the rest of the Maple 8 must have their legislative mandates broadened to permit them to strive for more than just maximizing their own respective financial returns.

With the challenges Canada is facing, it makes no sense that the world’s brightest working at the Maple 8 are not mandated to deploy our own capital here; to animate our economy. They are, after all, managing money earned by Canadians.

Even if this costs the Maple 8 a few basis points of returns, the impact on Canadian employment, technology investment, entrepreneurship, tax revenue, infrastructure and more would be immense. It would be more than worth it. What these public pension funds may lose to asset diversification, would ultimately benefit the Canadian population as a whole.

The gaps we now have in funding health care, housing, infrastructure, our military, etc., could in a very meaningful way be narrowed if we could leverage our own capital. Instead, our capital is mostly circulating all over the world – from the Middle East and North Africa to the Asia-Pacific, Britain and the EU, working in and for those economies.

To our federal and provincial governments: Allow the Maple 8 to keep more of our capital at home. Empower them with the same dual mandate that has worked so effectively for the Caisse and the Province of Quebec.

If not now, what circumstances, on top our current challenges and funding deficits, would prompt you to finally make this straightforward change? You have a golden opportunity to redirect some Canadian capital from global markets to domestic projects, ultimately benefiting all Canadians.