By Paul Vieira
OTTAWA--The chief executive of the CPP Investment Board warned about efforts to get domestic pension funds to deploy more cash in Canada, saying such a move could undermine efforts to maximize returns for Canadian retirees.
John Graham said 12% of the fund's portfolio is invested in Canada, a country that makes up 3% of global economic output.
"Our mandate is to maximize returns without undue risk, taking into consideration the factors that affect the funding of the plan," Graham said in the fund's annual report published Wednesday. "Our contributors live and work in Canada, but to restrict their money to that single market would undermine the long-term sustainability of the fund."
A push by business executives and federal officials to get pension funds like CPP to deploy more of their capital domestically comes as policymakers grapple with the funds needed to maintain infrastructure and help finance a transition to an economy that burns less carbon. Researchers at the University of Calgary have estimated the country's infrastructure deficit -- or the money required to upgrade or rehabilitate infrastructure -- has widened to up to 600 billion Canadian dollars, or the equivalent of $440 billion.
The cost to help economies meet net-zero emission targets, for the period between 2035 and 2050, could reach $150 trillion over a three-decade period, according to previous research from BofA Securities.
The CPP is one of the world's largest pension funds, and is funded primarily through mandatory contributions by employers, employees and the self-employed, and benefits are paid out based upon the age and the amount contributed over a person's working career. The pension fund's annual report indicated that the CPP Investment Board earned a net return of 8% for the fiscal year ended March 31, and its net assets as of the end of the 12-month period climbed about 10% to C$632 billion.
Current and former business executives in Canada have publicly called for the federal Liberal government to revamp pension laws to encourage them to invest in Canada, noting they were worried about pension-fund investment exposure to Canadian equities. The CPP annual report indicates that Canada accounts for 8% of its global exposure to both publicly traded companies and soon-to-be-listed equities.
In last month's budget plan for 2024, Finance Minister Chrystia Freeland named former Bank of Canada Gov. Stephen Poloz to lead a group to examine ways to encourage more pension-fund investment in Canada.
Freeland has in the past expressed admiration for the approach in Quebec, in which the Caisse de dépôt et placement's mandate is to earn returns while contributing to the region's economic development.
According to the budget plan, Poloz is tasked with working with pension plans to identify "priority investment opportunities" such as airports, home construction, physical infrastructure and investments in artificial intelligence.
A spokeswoman for Freeland wasn't immediately available for comment regarding Graham's remarks. In the budget plan, Freeland said the Liberal government believes that "encouraging pension funds to invest in Canada more would help grow the Canadian economy and provide the stable long-term returns needed to deliver strong pensions for Canadians."
In the annual report, the pension fund notes that current federal law establishing the CPP Investment Board sets no investment directions "related to economic development, social objectives or political directives."
Canadian pension funds manage roughly C$3 trillion in assets, according to the country's finance department.
In terms of a geographic breakdown, 42% of the fund's assets are invested in the U.S., followed by the Asia-Pacific region, 21%, Europe, 19%, and Canada, 12%. Nearly a third of its assets are in private equity, followed by publicly traded stocks, at 28%, public and private credit, 13%, and 12% fixed-income securities.
Write to Paul Vieira at paul.vieira@wsj.com
(END) Dow Jones Newswires
05-22-24 1423ET
