More than 90 top business leaders and chief executive officers, representing some of Canada’s largest companies, are putting their names behind a campaign to increase Canadian pension plan investments in domestic businesses, an initiative that has drawn strong opposition from some of the country’s largest pension fund managers.
The executives supporting the campaign – who come from industries that include auto parts, oil and gas, airlines, telecommunications, banking and grocery retail – made their case in an open letter sent Wednesday to federal Finance Minister Chrystia Freeland and her provincial counterparts. The letter urges the politicians to “amend the rules governing pension funds to encourage them to invest in Canada.”
Pension funds invest trillions of dollars on behalf of retirees. They hold roughly a third of the country’s institutional capital, putting them on par with Canada’s banks. But they invest only 4 per cent of their capital in publicly traded Canadian stocks, according to the letter. The executives are asking, in particular, for governments to incentivize the funds to increase that proportion.
“Pension funds are unique in their ability to be patient long term equity investors, just what Canada needs to forge its future,” the letter says.
“Without government sponsorship and considerable tax assistance, pension funds would not exist,” it adds. “Government has the right, responsibility, and obligation to regulate how this savings regime operates.” The letter does not recommend any precise policy measures.
Some of the signatories are entrepreneurs who built global businesses with pension fund backing, including Alimentation Couche-Tard Inc. ATD-T co-founder and chair Alain Bouchard, Bombardier Inc. BBD-B-T chief executive officer Éric Martel and Maple Leaf Foods Inc. MFI-T executive chair Michael McCain.
Couche-Tard and Bombardier’s major shareholders include the Caisse de dépôt et placement du Québec, one of the few public-sector fund managers with a dual mandate to both earn superior risk-adjusted returns for its clients and support its province’s economy. Mr. McCain took the helm at Maple Leaf in 1995 with support from the Ontario Teachers’ Pension Plan.
Henri-Paul Rousseau, former CEO of the Caisse, also signed the letter, as did retired Bank of Nova Scotia CEO Brian Porter, Tourmaline Oil Corp. founder and CEO Mike Rose and former Air Canada CEO Calin Rovinescu.
Four telecom executives signed the letter: Telus Corp. CEO Darren Entwistle, Rogers Communications Inc. CEO Tony Staffieri, Cogeco Inc. chair Louis Audet and Quebecor Inc. CEO Pierre Karl Péladeau.
The letter was organized by Peter Letko and Daniel Brosseau, the co-founders of Montreal-based fund manager Letko, Brosseau & Associates Inc. Mr. Brosseau said in an interview that the money held by Canadian pension funds is not living up to its economic potential. “What is undeniable is that … the impact that this savings pool has, or could have, on the Canadian economy cannot be ignored. And right now this is absolutely irrelevant in the calculus of pension managers and the regulations of the pension industry,” he said. “It’s a big mistake.”
Mr. Brosseau said the letter’s signatories are not calling on governments to mandate a certain level of investment in Canada, as existed decades ago when pension funds’ investments outside the country were capped. Nor do they support a Quebec-style dual mandate, or even politicians using moral suasion to influence pension executives.
“We do not want to tell pension funds where to invest, or how to invest, or in what to invest,” he said.
Rather, he added, they are pushing for a new set of rules that would “factor in” whether an investment is made in Canada or abroad, in the hope that this “tilts the table a bit toward domestic investment without stipulating how much it should be in total.”
Pension funds have defended their investment decisions, arguing that they seek the best returns for pensioners, relative to the risks of each investment, in keeping with mandates that are clear and focused.
“These are pension liabilities. They’re not institutional savings,” Michel Leduc, the global head of public affairs and communications at the Canada Pension Plan Investment Board (CPPIB), said in an interview. “The fund exists for one reason: To help maintain the financial sustainability of the Canada Pension Plan. There is absolutely no carve-out for other goals identified by the business community.”
Canada’s major pension funds invest broadly in Canada, with about 25 per cent of their assets in the country, on average. But the majority of these investments are in real estate, infrastructure and fixed income, rather than the public equities the letter’s signatories would like pension funds to increase their focus on.
Some large funds that have expanded globally have smaller shares, such as CPPIB, at 14 per cent. The Healthcare of Ontario Pension Plan has more than half its assets invested domestically.
Mr. Leduc warned against governments making a “premature jump” to create new policies aimed at steering more pension-fund investment to Canada, saying policy makers need to look at the root economic causes of the decline in Canadian productivity, and consider a range of policy options.
“There could be some very, very serious unintended consequences without doing that homework,” he said.
The federal government’s 2023 Fall Economic Statement announced that Ottawa intends to work collaboratively with Canadian pension funds to create an environment that encourages more opportunities for investments in Canada, both by those funds and by other investment pools.
In an opinion article responding to the government’s statement, Evan Siddall, CEO of Alberta Investment Management Corp. (AIMCo), which manages public pensions in the province, said Canada’s model for pension investment is highly regarded internationally. With its independence coming under pressure, “we should all be concerned,” he wrote.
He cautioned that the approach outlined in the Fall Economic Statement “asks pensioners to foot the bill for Ottawa’s failure to promote Canadian economic growth and productivity.”
But Mr. Brosseau contends that “to have such a large pool of savings shifted or directed elsewhere is not good for any economy.”
“It’s a national problem,” he said. “We hope that it would be better discussed, better analyzed … We also hope that there’ll be a consensus in the end.”