Despite the 'Buy Canadian' sentiment, the nation's largest pension funds continue to heavily favor American investments. This revelation is striking, especially considering the ongoing trade tensions with the U.S. and President Trump's challenges to Canadian sovereignty.
The Canada Pension Plan (CPP), a behemoth in the pension world, boasts a staggering $780.7 billion in assets, with a significant 47% invested in the U.S., dwarfing the mere 13% invested in Canada. This imbalance has persisted since Trump's reelection, as revealed in the third-quarter results.
Since 2005, when the Canadian government lifted restrictions on foreign holdings in pensions and RRSPs, the CPP's U.S. assets have been on a steady rise. Now, the CPP has a whopping $366 billion invested in the U.S., compared to just $98 billion in Canada.
This trend is not unique to the CPP. The 'Maple Eight,' Canada's largest pension funds, collectively hold a mind-boggling $1 trillion in U.S. assets. For instance, OMERS, the Ontario Municipal Employees Retirement System, has 55% of its portfolio in U.S. investments, while the Public Service Pension (PSP) has 40.5%.
But here's where it gets controversial: only three of these eight major funds have more Canadian assets than American. This raises the question: should pension funds prioritize domestic investments?
When questioned about their U.S. holdings, CPP spokesperson Michel Leduc acknowledged geopolitical risks but emphasized the CPP's long-term investment strategy. He stated that the CPP isn't swayed by short-term events or cycles, ensuring they carefully monitor risks.
Leduc further defended their U.S. investments by comparing them to global indices like the MSCI World Index and the Financial Times Stock Exchange 100, which are predominantly U.S.-focused. He argued that the CPP's U.S. holdings are actually below the global average.
However, investment manager Daniel Brosseau and economist Sen. Clément Gignac believe Canadian pension funds should reconsider their U.S. exposure. They argue that the economic policies of the Trump administration have made the U.S. market more unpredictable, potentially shifting the risk-return balance.
Brosseau, along with 90 investment leaders, urged the government to incentivize the Maple Eight to invest more in Canada. They believe these funds can significantly impact the Canadian economy, influencing wages and wealth through their investments.
In response, Finance Minister François-Philippe Champagne met with the Maple Eight in January to discuss new investment opportunities and encourage domestic investment. The government, however, has not reintroduced regulations to force pension funds to 'Buy Canadian,' as was the case before 2005.
Keith Ambachtsheer, a pension management expert, advocated for the removal of foreign investment caps, arguing that pension funds need global diversification. He isn't surprised by the large U.S. holdings, given the size of the U.S. market, and points to the CPP's 8.4% annualized returns over the last 10 years as evidence of success.
While some pension funds are considering new ventures in Canada, especially with the government's focus on major projects, they emphasize their commitment to low-risk, predictable investments. They assert that their decisions are not impulsive but based on clear objectives and careful monitoring of geopolitical risks.
So, should pension funds prioritize domestic investments, or is global diversification the way to go? The debate continues, and your thoughts are welcome in the comments.
