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Canada鈥檚 Maple 8 pension funds are globally respected for strong returns and independence from government influence. However, recent political moves threaten this model. The federal government has encouraged more domestic investment, while Alberta鈥檚 government fired AIMCo鈥檚 board, raising fears of political interference. 鈥淲hen you start investing based on political objectives, you risk compromising returns,鈥� warns Associate Professor of Finance Sebastien Betermier.

When Alberta commissioned a report on withdrawing from the Canada Pension Plan, the resulting document claimed the province was entitled to $334 billion more than half of the plan鈥檚 total assets. However, the method used to calculate that share is deeply flawed. If applied to other provinces, the combined total of their share would exceed the plan鈥檚 actual assets.

Canadian pension funds have a mandate to deliver steady pension payments to millions of plan members, writes Professor Sebastien Betermier in Benefits Canada. But that鈥檚 easier said than done, and the most cost-efficient way to deliver is by investing in a globally diversified portfolio tilted toward strategic assets. This type of asset, however, isn鈥檛 available in Canada, so pension funds look for them elsewhere.

Canada鈥檚 eight largest pension funds are big players in the world of institutional investing with more than $1 trillion under management collectively. Pressure is being applied for the funds to invest a greater proportion of their money in Canadian stocks. Yet, 18 per cent of their portfolio is already invested in domestic markets, explains Associate Professor Sebastien Betermier in an interview with Les Affaires.

In 2023, the Government of Australia suggested that some of the country鈥檚 pension assets might be used to fund social housing or renewable energy. The idea received mixed reception, and to understand why, Lachlan Maddock of Investor Strategy News looked to Canada, where a group of business leaders called for pension funds to increase their holdings of Canadian equities. Maddock quoted research published by 9I制作厂免费 Desautels鈥� Associate Professor of Finance Sebastien Betermier.

Canada鈥檚 biggest pension funds are some of the world鈥檚 largest investors and their diversified portfolios span the globe. But, should they be investing more in Canadian companies? Some CEOs think so. In March, 90 CEOs signed an open letter to Finance Minister Chrystia Freeland urging her to find ways to get pension funds to invest more in Canadian companies. But forcing pension funds to do so would be a mistake, says CD Howe Institute Senior Fellow Miville Tremblay in an op-ed in LaPresse.

Many pension funds are pledging to invest in green assets with net-zero emissions, but these investments tend to yield lower returns than the broader market index. Beyond that, a hard shift toward green investments could remove the incentive for heavy emitters to clear up their act. Investors need to rethink the assumption that sustainable investing means investing primarily in green assets, writes Professor Sebastien Betermier in Benefits Canada.