Governments should force pension funds to move beyond focusing on short-term returns and to pay more attention to the development of the entire Canadian economy, say voices from business and union circles.
“Pension funds represent approximately 37% of institutional savings in Canada, [soit] a size comparable to that of banks”, recalled on Wednesday just under a hundred business people and representatives of large unions in an open letter to the Ministers of Finance in Canada. And while they were prohibited until the 1990s from investing more than 10% of their assets abroad, this proportion has today been reversed and it is only around 10% of assets. of the eight largest Canadian pension funds that have invested in public and private companies, real estate or infrastructure in Canada.
“This was not done maliciously,” explained in a telephone interview to Duty Daniel Brosseau, the president of the investment firm LetkoBrosseau and one of the people behind the open letter signed among others by Pierre Karl Péladeau, Louis Audet, Andrew Molson, Laurent Beaudoin, Alain Bouchard and Jim Balsillie. It’s just that, in a world where we only take returns into account, we won’t try to give too much weight to a small economy like Canada in our asset portfolio.
When everything is counted, we see that the Canada Pension Plan (almost 600 billion in assets), the Caisse de dépôt et placement du Québec (more than 430 billion), the Ontario teachers’ pension fund (250 billion) and the five other largest pension funds in Canada have 25% of their assets in Canada, with the remaining 75% invested abroad, LetkoBrosseau calculated. This is about half the average presence of their peers in other countries in their own national economies.
However, the Canadian economy and its businesses have a pressing need for investments to help their development and improve their competitiveness. And since they have a longer investment horizon, pension funds would be particularly well placed to provide them with this financing. The operation should also prove to be a win-win because by helping the growth of the economy and employment in the country, the pension funds would serve their depositors doubly, both as workers and as title of retirees.
The example of the Caisse
The idea is far from enchanting the main stakeholders, admits Daniel Brosseau, and they have made this clear to governments who might be tempted to tighten the screws on them. The Minister of Finance, Chrystia Freeland, however, indicated this fall that she wanted to find a way with pension funds to increase their investments in Canada. “I think they are especially afraid of a return to rules with thresholds like in the past. But it would not be necessary,” says the financier, who proposes, for example, that each investment abroad comes with the obligation to keep a certain amount in reserve, supposed to be equivalent to the financial risk and the loss of economic benefits. that he represents.
At the Caisse de dépôt et placement du Québec, it says it already amply provides its share under its dual mandate which consists of seeking the best possible returns for its depositors and helping the economic development of Quebec. Since 2002, its exposure to the Canadian economy has increased from 66 to 159 billion out of a total of 434 billion in assets (37% of assets), reports the Caisse. In Quebec alone, its presence amounted to 88 billion (20% of assets), including 70 billion in 550 companies.
At the Institute on the Governance of Private and Public Organizations, we support the cause of greater investment in the local economy. Its president and CEO, François Dauphin, notes, however, that not all investments are equal. The economic leverage effect is not the same, for example, between the simple repurchase on the Stock Exchange of Canadian shares already in circulation and participation in an initial public offering of a developing company.
What is certain is that helping to maintain control of your own companies generally results in their better development in the long term, says François Dauphin. “I would quite agree to say that the Caisse de dépôt and its dual mandate are a good example to follow. But we have to be honest. What does everyone rate their performance on every year? Its returns. »