Do you mind if we invest your pension plan savings in a neighbour's furniture Start-up?

News report: Finance ministers signal desire for Canada’s pension funds to invest more at home as CEOs lobby for change

How can you argue against investing in the Canadian economy?

Imagine you have the luxury of participating in a Taxpayer-funded defined pension plan. Isn’t it your patriotic duty to invest a decent chunk of those pension savings in the very Canadian companies that create/sustain the jobs that generate the salaries of the folks who pay the income and consumption taxes that fund your pension?

Why ever would that pension capital be used to create wealth in a British water treatment facility, Germany EV assembly plant, or financing the parent company of Formula One racing, given Canada’s desperate need for ever-more new infrastructure, homes, nuclear plants, electrified rapid transit, increased clean tech research (see prior post “Clean technology advancements, not circular taxes, is Canada's best hope to reduce global greenhouse gasses and grow our economy” May 11-23) and far more high tech jobs (see prior post “‘60 additional intern jobs’ is not an Innovation Strategy” April 18-23)?

Where’s the common sense in a Canadian pension plan investing in a volatile economy such as Brazil, with its unstable political regime, when that same Portfolio Manager can just as easily drive down the 401 and check out their clean tech investment based in Guelph, size-up a fast-growing software firm in Kitchener-Waterloo, and then carry-on down the road to see the maddeningly-slow progress (I warned you all back in 2016) at the Gordie Howe Bridge, a multi-billion Public-Private Partnership P3 project that has the support of 10,000 Ontario export businesses?

I know the Caesars Windsor Hotel isn’t as plush as the Rosewood Sao Paulo, but the view of Niagara Falls at night is something to behold.

Last November, Finance Minister Chrystia Freeland kicked-off her jawbone campaign to encourage (Ed. note: shame?) large Canadian pension plans to invest more in the domestic economy. I’m not sure what took the Provincial Finance Ministers so long to hop on this populist bandwagon, but an open letter arranged by money management firm Letko, Brosseau gave journalists a reason to check-in last week and see where they stood: turns out that everyone loves the idea. Loves it!

It seems like only yesterday when Minister Freeland was scolding Alberta Premier Danielle Smith for proposing to withdraw her province from the Canada Pension Plan. As Premier Smith saw things, local management of those funds would mean they’d be able to invest more of their citizen’s accrued pension plan savings into the Provincial economy (see prior post “The political appeal of "Premier Smith’s plan to withdraw from CPP” -- whether we like it or not” Sept. 28-23 ). The Toronto Star Editorial Board was even more pointed than the Feds, and made the case that “Alberta wants to gamble with your pension. Danielle Smith’s roll of the dice needs to be stopped.”

The debate focused in large measure on whether Alberta was entitled to 12, 25 or 54% of CPP’s asset base. That said, every single Federal and Provincial leader — regardless of their political stripe — trashed the Alberta-first concept on the basis that English Canada’s collective pension plan (the CPP) would be weaker if any one province took their nickels and went home.

While Alberta has the unquestionable legal right to manage it’s own Federal pension dollars, as has been done in the Province of Quebec for more than 55 years, the accepted argument seemed to boil down to: “it would be a horrible move for pensioners, both present and prospect.” Even the Prime Minister waded into the battle, hoping to turn the topic into a 2025 election wedge issue with senior citizens.

Recognizing the trap, Conservative Leader Pierre Poilievre stayed clear.

In all of the ruckus last September/October, most observers refused to acknowledge why Alberta might want to invest more in its domestic economy. The reality is that many global investors and large banks, both foreign and domestic, are backing away from the oil and gas industry. Access to capital is a key element of any economy, and Alberta is right to be concerned. As I tried to remind everyone at the time, Quebec’s CDPQ pension plan managers have been able to have their investment cake and eat it too:

In its most recent quarterly report, CDPQ announced that it handily beat its benchmark over the past 10 years (7.9% vs 7.0%); something every investor yearns to do. What must be hard for Premier Smith to ignore, and that armchair commentators can’t deny, is that CDPQ’s investment managers delivered that superior return while having a specific focus on the Quebec economy.

To my surprise, it has suddenly become politically acceptable to demand that these same independent managers invest more of our pension dollars in our own backyard. Minister Freeland’s staff even stooped this week to use my CDPQ example as part of their pitch to the CEOs of Canada’s largest plans:

Katherine Cuplinskas, a spokesperson for Ms. Freeland, in an e-mail. “Our government is committed to working collaboratively with [Canadian Pension Plans] to find even more opportunities to bring their investment acumen home to Canada.”

Ms. Cuplinskas…highlighted the Caisse de dépôt et placement du Québec in her statement, “with its strong track record of both delivering excellent returns and contributing to Quebec’s economic development,” as “a good example of how effective this approach can be.”

Premier Smith must be shaking her head in disbelief. Where was the Canada First mentality last September?

There are good arguments on both sides of the issue, and several CEOs of large Canadian pension plans were ready to remind the media and our elected officials about their fiduciary obligations to their individual plan members.

While each large pension entity is governed a bit differently, with its own legislation and investment mandate, there’s universal agreement among them that they won’t bow to political pressure. They’re all old enough to recall the time that then-PM Jean Chretien called then-Business Development Bank of Canada president François Beaudoin to discuss the 1996 loan application of Auberge Grand-Mères. A hotel owned by Mr. Chrétien’s friend and former business partner.

As he was setting up the CPP Investment Board almost 25 years ago, founding CEO John MacNaughton, CM once told me they were “throwing away the key” upon formal launch. He and the various Federal and Provincial officials involved drafted the legislation to ensure that no politician could ever twist the arm of one of his successors.

This generation of pension plan CEOs are going to be no less protective than my mentor was. If a Canadian entrepreneur wants a local pension plan portfolio manager to back their new furniture plant, it had better be a great business plan. Guilt isn’t going to move the needle.

MRM

(this post, like all blogs, is an Opinion Piece)

(Photo credit: Rempailleurs (A), Paris, 1950 [aka Chair Caners] by Irving Penn)