Pension plans

I have argued that Canada has a major productivity growth issue and seriously needs to consider adopting a comprehensive, multi-year plan to address this issue at its core. We need to find ways of encouraging businesses to invest in new technologies, innovation, and people. There is no silver bullet or a one-size-fits-all approach to ensuring our economic growth and boosting Canada’s lackluster productivity record, particularly in a post-Covid economy.

However, we do know that there are massive amounts of money in private pension plans in Canada that could be invested into Canadian companies that could help stimulate our economy. Instead, many private pension funds prefer investing their money in foreign companies.

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

Some would argue that since Canada only represents 3% of the world’s equity markets, Canadian pension funds should only hold 3% of Canadian stocks. While that argument may convince some, I would contend that Canadian pension fund managers should reexamine their investment strategies and consider investing more money into homegrown talent. In the grand scheme of things, these investments would help businesses prosper by allowing them to boost their productivity, accelerate innovation and technology adoption, fuel competition and raise the standard of living of Canadians by generating higher-paying and better-quality jobs.

Canada is an entrepreneurial powerhouse. We have brilliant minds, top-notch talent, promising start-ups, and highly reputable and profitable industries with long histories of growth and success. Investors should feel confident (and proud) to inject money into our economy, knowing that many Canadian equities are punching above their weight and outperforming many foreign equities.

My colleague Senator Gignac, a prominent economist and former provincial cabinet minister of economic development, also believes that pension funds are instrumental in Canada’s long-term economic expansion. Governments have stepped up during the pandemic in helping Canadians through this health crisis, but governments also have a responsibility to reel in spending and properly manage the public purse. As a result, the stage is set for capital investments from the private sector, particularly from private pension funds, to step in and take the lead.

Indeed, in 2021, the government created the Sustainable Finance Action Council. As reported in its most recent budget, the government convened 25 of Canada’s largest financial institutions and pension funds, which together represent more than $10 trillion in assets, in the hopes of aligning private sector capital with the transition to net-zero. So far, the government has been quite generous in investing funds towards the net-zero transition, but the massive spending power of the private sector must also play a vital role in this undertaking. I appreciate this Advisory Council will focus 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.

By no means am I suggesting the government should direct where private pension funds invest their money. I believe in free markets and the independence of these funds but, as I publicly stated in the Senate earlier this month, policymakers need to engage with investors to help shape an investment landscape that is conducive to overturning this troubling trend.

Perhaps one positive first step would be to consider what tools the government has at its disposal to further incentivize pension funds to invest in Made-in-Canada businesses, particularly with respect to the regulatory landscape that private pension funds must adhere to. This may not be the fix-all solution we need, but I think it would go a long way in reinjecting massive sums of money into the Canadian economy which, in turn, would help generate revenues, jobs, and growth. It would also have the added benefit of reinvigorating Canada’s entrepreneurial spirit and stimulating innovation and productivity.

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