Achi news desk-
Ottawa is appointing former Bank of Canada governor Stephen Poloz to lead a new federal working group that will look at ways to encourage Canadian pension funds to invest more in the country, particularly in areas such as digital infrastructure and airports.
The working group is being created to “explore how to catalyze more domestic investment opportunities for Canadian pension funds,” the government announced in its budget document released Tuesday, and Mr Poloz will be supported by Finance Minister Chrystia Freeland, with the participation of pension leaders.
The review will focus on priority areas including investment in digital infrastructure, artificial intelligence, physical infrastructure, airport facilities, back-up venture capital and early stage companies, as well as building more new homes. There is a particular emphasis on airports – an asset that pension fund leaders have long said would be of interest to them if governments opened them up to private investment.
And the group was asked to consider whether Canada should lift a rule limiting pension funds from holding more than 30 per cent of the voting shares in a company, which is considered by some to be antiquated and has already been avoided by some large funds.
The working group is Ottawa’s answer to a debate that has arisen in recent months about whether Canada’s largest pension funds, which together manage more than $2 trillion in assets, are investing enough in their home country. Senior business leaders, including the chief executives of some of Canada’s biggest companies, have pressed Ms. Freeland and its provincial counterparts to change the rules governing pension funds, as a way of pushing them to put more of their members’ dollars into Canadian investments. But current and former pension fund leaders have pushed back strongly, arguing that the funds must retain their freedom and independence to invest as they see fit, to ensure they can pay sustainable pensions to w members for the future.
Ms. Freeland and Ontario Finance Minister Peter Bethlenfalvy have both indicated a desire to boost domestic investments of pension funds, and the budget measures announced on Tuesday echo previous promises made in the federal government’s fall economic statement.
But by framing the working group as “working with pension plans,” and focusing on unlocking investment opportunities that align with pension funds’ duties to invest in the best interests of their members, Ottawa appears to be taking conciliatory attitude.
“It seems to us, based on what we’re seeing in the budget, that they have it right,” said Michel Leduc, head of public affairs and global communications for the Canada Pension Plan Investment Board. “If you want to bring all the right people to the table, you have to show a level of openness, and I think that’s what they’re doing.”
In Mr Poloz, the government has chosen a respected mediator to lead the process. The economist and former central banker, who now works as a special adviser to the law firm Osler, Hoskin & Harcourt LLP, commands the respect of a wide range of Canadian business leaders. After a career spent in the senior ranks of Ottawa, he has a deep understanding of the broad forces that shape the country’s economic performance. And his experience leading the Bank of Canada – an institution that fiercely guards its independence – is likely to provide some comfort to pension fund executives willing to preserve their independence.
The working group’s proposed scope does not mention more drastic options, which could have included rewriting legislation to add a specific focus on economic development to public pension fund mandates, or changing investment rules to treat investments in Canada differently from those made abroad. Those kinds of changes, supported by some business leaders, could be difficult for Ottawa to make. They would need buy-in from states in most cases.
While almost all of Canada’s largest pension funds have mandates to focus on getting the best investment returns for pensioners while managing risks, Quebec-based Caisse de dépôt et location du Québec – which manages a $434-billion investment portfolio – has a dual mandate which includes contributing to the economic Development of Quebec. In past statements, Ms. Freeland’s office has praised the Caisse’s track record of delivering returns and adding to Quebec’s economy. The latest budget measures appear to prevent such a dual mandate from being imposed on other funds.
“A key measure of success will be: Does it create new and better opportunities at scale? Does it reduce different types of risk compared to other markets? Because it’s all about risk-adjusted returns,” Mr Leduc of CPPIB said of the budget announcement.
To attract new investment capital to airports, including from pension funds, the budget says the Transport Minister intends to release a policy statement this summer which highlights “current flexibility” in the governance of the system national airports.
The government also plans to make the analysis of how much Canadian pension funds invest in Canada and abroad more transparent. The budget says Ottawa will empower the country’s federal financial regulator, the Office of the Superintendent of Financial Institutions, to publicly disclose a standard set of information about large federally regulated pension plans. It would show the proportion of assets invested in each country, broken down by asset type – for example, stocks, bonds, real estate or infrastructure – in each jurisdiction.
That could help fill gaps where plans don’t already publish that much detail, and Ottawa is promising to work with provinces and territories to create similar disclosure rules for the big plans they regulate, which would be essential to create a consistent standard.
The budget document also sharpens the mandates for the Business Development Bank of Canada and Export Development Canada, two Crown agencies where the government has previously promised to review operations. Ottawa is directing the Business Development Bank of Canada to increase funding “for promising new and high-growth businesses,” and to redirect more of its venture capital investments to “new and higher-risk sectors to help attract more private capital.”
The government also says in the budget that Export Development Canada should change its risk management policies to enable it to take more chances, and create a special envelope of money to enable riskier investments when the agency is support exporters in key areas for Canada, because they are expanding into “highly competitive markets.”
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