Despite a nationalistic "Buy Canadian" sentiment, Canada's largest pension funds are keeping a significant portion of their assets invested south of the border.
Even with the ongoing trade tensions and rhetoric from the U.S., the country's premier pension plans continue to maintain substantial investments in the United States. The Canada Pension Plan (CPP), a colossal fund, recently announced its assets have reached an impressive $780.7 billion. What's striking is that 47% of these assets are allocated to the U.S., while a mere 13% is invested within Canada.
This allocation hasn't shifted much since the current U.S. administration took office, according to recent financial reports. In fact, the CPP's U.S. investments have seen consistent growth since 2005, the year Canada lifted restrictions on foreign holdings for its pension funds and Registered Retirement Savings Plans (RRSPs). Currently, the CPP has a staggering $366 billion invested in the U.S., dwarfing its $98 billion Canadian portfolio.
And the CPP isn't an outlier. An analysis of the "Maple Eight" – Canada's top pension funds – reveals they collectively hold approximately $1 trillion in U.S. assets. For instance, OMERS (Ontario Municipal Employees Retirement System) has 55% of its portfolio in the U.S., and the Public Service Pension (PSP) has 40.5%. Only a few, like the Healthcare of Ontario Pension Plan, the Ontario Teachers' Pension Plan, and Alberta Investment Management Corp., hold more Canadian assets than American ones.
When questioned about these U.S. holdings, a CPP spokesperson, Michel Leduc, acknowledged investor concerns about geopolitical risks. However, he stressed the CPP's long-term investment horizon. "We are not easily swayed by current events or by any economic or even electoral cycles, even as we monitor turmoil very carefully to avoid excessive risks," he stated. Leduc further explained that the CPP's U.S. allocation is actually below the average when compared to global diversification benchmarks like the MSCI World Index and the FTSE 100, which both feature around 65% U.S. content. "So yes, I understand Canadians are wondering, 'Why so much in the U.S.? Why not more in Canada?'... 47 per cent is actually well below [the average]," he added.
But here's where it gets thought-provoking...
Daniel Brosseau, president of Letko Brosseau Global Investment Management, argues that pension funds play a crucial role beyond just providing retirement income. "They are also investing in things, investing in plants, equipment and economic activity," he said. "They can influence people's wages in Canada, they can influence the wealth of Canadians in Canada through their investments." Brosseau was a co-author of a letter signed by 90 investment leaders urging Ottawa to create incentives for the Maple Eight to boost domestic investments, noting that Canada has about $3 trillion in available capital for investment.
Economist and Senator Clément Gignac believes that growing uncertainty in the U.S. and emerging opportunities in Canada are prompting a reassessment of U.S. holdings. "The environment has changed a lot. It's still a liquid market but it's very unpredictable, the economic policies from the Trump administration," Gignac observed. "I think the risk/return has shifted regarding the U.S., and that's the reason that, in fact, I think that Canadian pension funds are currently re-evaluating their exposure to the U.S. market."
And this is the part most people miss...
In January, the managers of the Maple Eight funds met with Canada's Finance Minister in Toronto to discuss potential new ventures and encourage more domestic investment in their collective $2.6 trillion in assets. Finance Minister François-Philippe Champagne confirmed these discussions, stating, "We have created a meeting point every quarter that we're going to be sitting together … looking at the kind of projects that could lead them to invest more in Canada."
However, the government has not resorted to regulations or mandates to "Buy Canadian," a practice that was in place before 2005 when foreign ownership limits were enforced. Champagne expressed confidence that the large pension funds "have realized themselves the interest of investing in Canada."
Keith Ambachtsheer, from the University of Toronto's Rotman School of Management, who was instrumental in advocating for the removal of foreign investment caps, isn't surprised by the substantial U.S. holdings. "If you put the global portfolio together and look at it, it’s got a big chunk of the U.S. in it, just because it's a big country with a big capital market," he explained. He also noted the positive performance, stating, "The good news is when you measure it as to how we've actually done the last 10, 20 years, it's pretty good." The CPP, for example, reported an average annualized return of 8.4% over the last decade, despite recent global uncertainties.
Several of the Maple Eight funds, when contacted, emphasized their close monitoring of U.S. developments and their active pursuit of opportunities in Canada, particularly in large-scale projects. OMERS spokesperson Don Peat stated, "We recognize that this is a pivotal time for Canada, and we see significant opportunities to advance transformative, nation-building projects." CPP's Michel Leduc reiterated their focus on low-risk, predictable returns, citing investments in infrastructure, utilities, and airports as examples. He assured that the fund operates based on clear objectives outlined in the Canada Pension Plan Act, not on impulsive decisions.
What are your thoughts? Should Canada's pension funds be doing more to invest domestically, even if it means potentially lower diversification or returns? Share your perspective in the comments below!
