Editorial: Enforcing the level of domestic investment would be like telling Usain Bolt to wear running shoes only made in Jamaica
Canada’s public pension funds have a simple but hugely important mandate – to provide secure retirement income for Canadians. To this end, the “Maple 8” have been a stunning success and consistently rank high in global pension fund league tables. Arguably the biggest reason for this success is their independence from political interference and the freedom they have to make the best investment decisions to sustain their funds.
And yet, not everyone is happy. In an open letter to federal and provincial finance ministers in March, business leaders called for new rules and incentives to reverse a decline in domestic investments and address Canada’s productivity problem.
At the heart of the argument is how much the pension funds are in the pocket of government. John Ruffolo, founder and managing partner of Maverix Private Equity, and founder of OMERS Ventures, is quoted in betatkit.com as saying there is a clear separation of church and state, adding, “This is private capital. It doesn’t belong to government. [The pension funds are] not sovereign wealth funds and people confuse them as such.”
But in the letter, business leaders indicated that it’s not so clear cut. “Without government sponsorship and considerable tax assistance, pension funds would not exist,” it read. “Government has the right, responsibility, and obligation to regulate how this savings regime operates.”
These two opposing views pose the question of whether public pension funds really have underinvested in Canada. HOOPP’s portfolio holds about a 55 percent allocation to Canada, and pointedly explained that this is done because the assets are of high quality, not out of a sense of national duty. Last fall, the CPPIB pushed back on the idea it wasn’t supporting Canada by citing global context – that Canada represents about 2.5 percent of global capital market opportunities and that the fund typically allocates double digits.
Should these funds, which represent the future safety net for millions of hardworking Canadians, be used to fix problems in the Canadian economy? Should they sacrifice some diversification (a tenet of good investing) for the greater economic good? Such an intervention would inherently make the public pension funds a political football, which would surely distract from their core mandate.
Their independence is essential. Why punish them for their excellence? It’s like telling Usain Bolt to wear running shoes only made in Jamaica, despite the best spikes being made elsewhere. Let’s explore other ways to stimulate our economy rather than interfere with our flagship pension funds, which represent a modern-day Canadian success story.
