According to analysts at the Royal Bank of Canada, the country's economy is poised to be “slower than the US” this year. However, pension cash alone cannot boost Canadian property, some argue.
Charles Emond, chief executive of Quebec's fund, noted that when it comes to putting Canadian retirement savings in work, he would “go in both directions.” Pension funds can always invest more in Canada, he said.
But “You need to be able to have a project that throws money,” he said.
The timing of the “investment in Canada” push did not worsen for pensions. They are tackling one of the toughest economic conditions since the 2008 financial crisis, triggered by liquidity tensions and profit-focused rising interest rates. A portion of Maple Eight is checking whether it is too exposed to the private market, which accounts for around 60% of its portfolio.
Over two years of restrained trading activities have made it difficult for some pension plans that withdraw investments and release capital. Even if some lack cash to work, pension funds encounter unforgiving calls for local investments.
Alberta is unhappy with the way its managers invest and how pensions are raised, and fired the entire board and CEO late last year. I sent a clear message to Maple 8.
The story is based on interviews with more than 12 industry-savvy people, including pension plan officials and fund managers. Some of them asked not to identify discussing sensitive issues.
Maple model
Ontario's teacher pension scheme pioneered today's gold standard methods, focusing on independence and long-term betting in the early 1990s, after the funding crisis motivated the province's model. Similar overhauls continued for Canada's Pension Plan Investment Committee and other Canadian pensions.
The investing-savvy executive is currently heading the Canada Pension Committee, with former life insurance CEOs chairing former bankers of CPPIB, Goldman Sachs Group and RBC, sitting on the Ontario Teacher Board of Directors.
Canada's pensions have “large and forced investments” and have built an internal team dedicated to risk management, middle school functions and finance, said Rashay Jethalal, CEO of investment data company CEM Benchmark.
Other funds around the world, including those in Australia and the Middle East, have strengthened their businesses in similar ways, he said. In 2017, the World Bank said that Canada's pension model embodies “practical lessons for building world-class pension organizations.”
However, the Maple Eight model shows cracks. When the Alberta government kicked out pension boards and management in November, it denounced rising costs and “moderate” returns. This move has resonated across the industry, particularly as Alberta Investment Management Corp.'s investment strategy, performance and costs are among the teams.
The government has tapped former politician, former Conservative Prime Minister Stephen Harper on the board of AIMCO and longtime civil servant Ray Gilmore as interim CEO. Pensions have already cut costs and could potentially make others do the same.
In the shadow of AIMCO takeover, some pensions are internally debating whether they are properly involved with shareholders and maintaining autonomy. Outside companies that manage assets for at least one pension have placed the fund in the position that governments must make repeated assurances that they are not interfering with investments, and have asked about political interference.
“There is a world-class public retirement system in Canada, and it is very important that investment managers like AIMCO operate independently to ensure the continued security of Canadian pensions,” AIMCO said in a statement.
Pension, which has around 40% of its portfolio invested in Canada, “continue to actively pursue global investment opportunities to increase the potential source of diversification and generate superior risk-adjusted net profits for its clients,” added Aimco.
Open Letter
Last year, around 100 Canadian business leaders, including Montreal-based asset management firms Letko and Brosseau & Associates, signed an open letter urging the Finance Minister to “amend the rules governing pension funds to encourage investment in Canada.”
Eric Boyko, CEO of Music and Media Company Stingray Group Inc., has signed the letter. Pension funds should be obligated to invest the lowest levels of assets in Canada, he said companies like his struggle should increasingly explain, like small businesses like his struggles to attract investors.
“We need to find ways to bring more money to the Canadian market,” he said.
The federal government has so far resisted demanding pensions to invest in domestically, but it has strongly encouraged them to do so through the relaxation of recent restrictions on pensions' ability to own control over the stocks of Canadian companies.
“We were disappointed and not so impressed with what was proposed,” said Peter Letoko, co-founder of Leto Brosseau. He said federal proposals, including allowing pension plans to own airports, are equivalent to giving pensions stocks in “gold mines.”
“They should invest more,” Lecco said. “Investing in our own community will encourage more economic activity.”
The fund's domestic support has declined over the past 20 years, he said. His company's research shows that most Canadian investments are not in corporate fairness, but in fixed incomes such as government bonds.
One pension could serve as a model for feeding the Canadian economy: Caisse de Depot et Placement du Quebec. The fund is obligated to invest in Quebec and its businesses, which has highlighted more since Trump strengthened his tariff threat in February. As of December 31, $93 billion in total assets had been invested in Quebec, with the goal of reaching $100 billion by next year without compromising performance.
“I think this needs to be addressed soon, whether it's unrelated to tariffs or not,” said Emond, CEO of Quebec's pensions.
Some of the people who signed the letter argue that the government should not allow domestic businesses to support pensions. Laurent Ferreira, CEO of the National Bank of Canada, said Canada simply needs to be “more investable.” He said pensions will follow suit if the country encourages wider investments in industries such as energy and natural resources.
Reed, who co-authored the National Post op-Ed, suggested that pensions held in Canadian bonds would be directed to fund military infrastructure.
“The pension scheme should be encouraged to do that,” he said. “And that's the right investment decision.”
Teachers in CPPIB and Ontario did not reply to requests for comment. Ontario's City of Employee Retirement Scheme and Public Sector Pension Investment Committee said it is committed to working with the government to create an environment that encourages and unlocks domestic investment.
Strategic shift
As Canada's pensions are pushed to move investments into homes, they are reexamining strategies that set them apart from many other public institutions overseeing retirement income. Maple's eight pensions internally manage most of their assets and directly invest some of those funds. They are Brookfield Asset Management, KKR&Co. , rather than simply passing capital to alternative asset managers such as Blackstone Inc., they built staff to lead the way in trading.
Meanwhile, Canada's pensions opened offices, hired people from all over the world and had access to coveted transactions. CDPQ invested $5 billion in some of Dubai's most acclaimed assets, including the largest port in the Middle East, and owned a 19% stake in the Eurostar group as of 2023.
However, they ran into some trouble. On US bribery charges against Indian billionaires, Gautam Adani has stifled CDPQ after three of his former employees were accused of conspiracy to violate the US Foreign Corruption Practices Act. According to the Securities and Exchange Commission, Omers is the second owner of Azure Power Global.
Separately, members of Ontario teachers sued the pension plan in January. This alleges that the board failed to properly undertake due diligence when investing $95 million in FTX, a crypto exchange that collapsed in 2022.
Future pensions are considering investing more open market investments amid declining returns for private ventures.
“If the additional fees are undoubtedly less than before, does it really make sense to invest a huge amount in the private market?” said Eduardo van Gerdelen, former chief investment officer of the Public Sector Pension Investment Committee. He also said pensions need to become more fluid as baby boomers retire.
When they invest in alternatives, some of the maple 8, such as CDPQ and Omers, are leaning more towards external managers rather than owning direct interests, particularly in private equity. Direct ownership requires employing richly compensated executives. A wealth of compensation executives expect to work in a luxurious office that can attack billions of dollars in transactions.
These are the kinds of costs that have bothered the Alberta government. The global expansion of the pension fund includes renting an office at New York's High-end Tower One Vanderbilt, opening a former post base in Singapore, playing a new non-invest role, and awarding expensive contracts to external consultants. Aimco then closed offices in both locations.
However, some critics argue that Alberta has stepped over its authority by ousting away the entire leadership. Critics say the push to investing is hindering the primary purpose of pensions: delivering returns and bringing pensioners all together.
“If one day or the next, the government can turn down the entire board and start over from scratch, then it's not as independent as you would like,” said Sebastian Bettermier, an associate professor of finance at McGill University in Montreal. “It can affect other funds as well, and it's the most important question in the mind, as it affects your ability to focus in the long term.”
– Support from Christine Dobby.
(Headline update)
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