Canadian businesses vs. Canadian pensions

If there’s one thing we all can agree on, it’s that in Canadian business, publishing an open letter to your enemies in a newspaper is one of the most dramatic things you can do. 

What happened: That’s exactly what over 90 business leaders from top Canadian companies did when they publicly asked the country’s finance ministers to devise new rules for pension funds to invest more in Canadian businesses. 

• These investments are funded by the contributions of Canadians to their pensions and are one day returned via pension benefits. Companies want some of that money. 

Catch-up: In 2005, Canada lifted foreign investment restrictions for pensions. Funds have also turned towards assets like real estate rather than stocks. These factors led to holdings of publicly traded Canadian companies falling to just 4% of assets, down from 28% in 2000.

Why it’s happening: Pension funds hold about a third of the country’s institutional investing money, putting them up there with the likes of banks and major asset managers. If they turned on the taps for Canadian companies, it could give the economy a shot in the arm. 

• Canada’s main stock index, the TSX, has lagged behind its American counterparts as of late while productivity and business investments per worker continue to drop.  

Why it matters: It’s not the job of the pension industry to prop up the Canadian economy but to create value for future retirees. As the industry points out, the funds have done a pretty good job, but mandates requiring domestic investments could hamper these returns. 

• The feds agree with disgruntled business folk, with the 2023 Fall Economic Statement encouraging more domestic investment from pensions.

Zoom out: For an example of well-meaning mandates doing harm, look at Caisse de dépôt et placement du Québec (CDPQ). It’s one of the few funds forced to contribute to provincial economic development — a mandate that’s contributed to missing its investment goals.

Bottom line: If other pensions are forced to shell out dollars for domestic investments, they could hit some duds. The CDPQ has invested in some high-profile failures over the years, like a failed electric taxi service and a Québecois Amazon clone that just shut down.—QH