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Canada is calling on its C$3tn (US$2.1tn) pension system to boost domestic investment as it seeks C$500bn in new finance to reboot the economy and lower its dependence on the US.
Industry minister Mélanie Joly told the Financial Times the new wave of “economic nationalism” means Canada’s financial institutions must foster homegrown investments and major infrastructure projects to kick-start the country’s sluggish economy.
“I’ve had lots of conversations with our banks, and our pension funds. There’s a sentiment that we need to think about Canada first and that we need to put capital where our mouth is,” she said.
This month Joly launched an industrial strategy aimed at creating jobs and attracting foreign investment in response to US President Donald Trump’s tariffs on Canada.
“For a long time pension funds have said that they need to provide yields to their beneficiaries . . . but they can have a discussion with their beneficiaries about their impact in their own country, their own environment, where beneficiaries live,” she said.
Mélanie Joly wants pension funds to focus on domestic investment and major infrastructure projects © Bess Adler/Bloomberg
Like the UK, Canada has been examining how to channel more pension assets to domestic targets to combat weak productivity and poor business investment.
Last year more than 90 Canadian corporate executives signed an open letter calling on the government to amend rules which would allow them to increase domestic investments, saying the amount they allocated to Canadian equities had dwindled from 28 per cent in 2000 to 4 per cent by 2023.
Ottawa in December lifted its 30 per cent cap for investments in Canadian entities at a time when Trump was threatening tariffs and trade wars against its major trading partner.
“This will make it easier for Canadian pension funds to make significant investments in Canadian entities,” said the finance ministry’s Fall Economic Statement.
The Canada Pension Plan Investment Board, the country’s largest fund with C$714bn of assets, revealed its total allocation to Canadian assets dropped to 12 per cent of the fund in March from 14 per cent two years earlier, although the total value of Canadian assets still increased.
But Paul Beaudry, a former Bank of Canada deputy governor, warned forcing funds to invest locally was “very dangerous” as it risked creating “a type of crony capitalism”.
Beaudry said the government could identify either socially beneficial projects or mid-level companies that big funds overlooked for investment.
“I’m not against pushing it but I like it to be more on the incentive part than on the idea of kind of forcing it,” he said.
Prime Minister Mark Carney launched a “Buy Canada” campaign last month that prioritises local products for procurement as a way to make Canada “the strongest economy in the G7”.
It is an ambitious goal considering the country’s economy shrunk more than expected in the second quarter while exports fell 7.5 per cent compared with the first three months of the year because of the tariffs, according to Statistics Canada.
Canada has also set up its Major Projects Office to fast track national infrastructure proposals and to create a positive investment environment for financial institutions such as its pension funds.
The government is also potentially lowering the 90 per cent threshold that limits municipal-owned utilities from attracting more than 10 per cent private sector ownership, in particular from Canadian pension funds.
CPP Investments has nearly 50 per cent of all its assets invested in the US, despite pressure from Ottawa to invest more in its home market. Similarly Omers, the pension fund for Ontarian municipal workers with C$141bn of assets, had 16 per cent invested in Canada and 55 per cent invested in the US at the end of June.
“Dozens of policymakers have frequently commented in recent years about welcoming more investments into Canada and our approach remains unwavering and steadfast,” CPP Investments said. “We act in the best interests of contributors and beneficiaries in line with the pension promise.”
CPP Investments in July announced a C$225mn investment in a new data centre in Cambridge, Ontario. It also has a $1.7bn investment in Canadian Natural Resources, the country’s largest energy producer.
Other Canadian funds have a higher domestic allocation, such as the C$123bn Healthcare of Ontario Pension Plan, which has more than 55 per cent of assets invested in Canada, and the C$270bn Ontario Teachers’ Pension Plan which has 36 per cent.