Private pension funds should invest more in Canadian companies | PO/DE

I argued that Canada has a major productivity growth problem and must seriously consider adopting a comprehensive multi-year plan to tackle this problem at the grassroots. We need to find ways to encourage companies to invest in new technologies, innovation and people. There is no silver bullet or one-size-fits-all approach to ensuring our economic growth and boosting Canada’s lackluster productivity record, especially in a post-Covid economy.

However, we know that there are huge sums of money in private pension plans in Canada that could be invested in Canadian companies that could help stimulate our economy. Instead, many private pension funds prefer to invest their money in foreign companies.

Research by Montreal-based global investment management firm Letko-Brosseau recently found that Canadian-listed stocks accounted for nearly 80% of Canadian pension fund equity investments in 1990. By 2020, that proportion had fallen to just 10%. While this may be a global trend, Canada is well ahead of countries like Australia, Japan and the UK in reducing its exposure to domestic equities. In fact, some of the largest pension funds in the country hold only 1% of their assets in Canadian public company stocks. In other words, billions of dollars are injected into the economy of foreign countries rather than domestically.

Some would argue that since Canada only represents 3% of global equity markets, Canadian pension funds should only hold 3% of Canadian stocks. While this argument may convince some, I argue that Canadian pension fund managers should re-examine their investment strategies and consider investing more money in local talent. Overall, these investments would help businesses prosper by increasing productivity, accelerating innovation and technology adoption, fueling competition, and raising the standard of living of Canadians by creating better paying and better quality jobs.

Canada is an entrepreneurial powerhouse. We have brilliant minds, top talent, promising start-ups and highly reputable and profitable industries with a long history of growth and success. Investors should feel confident (and proud) to pump money into our economy, knowing that many Canadian stocks are overweighting and outperforming many foreign stocks.

My colleague, Senator Gignac, an eminent economist and former provincial minister of economic development, also believes that pension funds play a key role in Canada’s long-term economic development. Governments have stepped up during the pandemic to help Canadians through this health crisis, but governments also have a responsibility to cut spending and manage taxpayer dollars properly. As a result, the stage is set for private sector capital investment, especially private pension funds, to step in and take the lead.

Indeed, in 2021, the government created the Sustainable Finance Action Council. As noted in its latest budget, the government has convened 25 of Canada’s largest financial institutions and pension funds, which together account for more than $10 trillion in assets, in hopes of aligning private sector capital with the transition to net zero. So far, the government has been quite generous in pouring funds into the transition to net zero, but the massive purchasing power of the private sector must also play a vital role in this endeavor. I appreciate that this advisory council is focused on the green transition, but I hope that while all these major players are gathered around the same table, the government will explore and try to understand why Canadian funds are leaving the country.

I am in no way suggesting that the government should decide where private pension funds invest their money. I believe in free markets and the independence of these funds but, as I stated publicly in the Senate earlier this month, policymakers must engage with investors to help shape a conducive investment landscape. to reverse this troubling trend.

A positive first step might be to look at the tools available to government to further incentivize pension funds to invest in made-in-Canada companies, particularly with respect to the regulatory landscape that private pension funds must comply with. . It may not be the magic bullet we need, but I think it would go a long way toward putting huge amounts of money back into the Canadian economy, which in turn would help generate revenue , jobs and growth. It would also have the added benefit of reinvigorating Canada’s entrepreneurial spirit and stimulating innovation and productivity.