Despite the patriotic calls to 'Buy Canadian,' Canada's largest pension funds are still pouring billions into the United States! It might seem counterintuitive, especially with ongoing trade tensions and political rhetoric, but the numbers reveal a persistent and significant investment in the U.S. market.
Let's dive into why this is happening and what it means for Canada's economic future.
The Canada Pension Plan (CPP), a behemoth in the pension world, recently announced its assets have reached a staggering $780.7 billion. But here's the surprising part: a substantial 47% of these assets are invested in the U.S., while a mere 13% remains in Canada. This U.S. investment hasn't wavered since President Trump took office, with CPP's U.S. holdings growing steadily since 2005, when restrictions on foreign investments for Canadian pensions and RRSPs were lifted.
To put it into perspective, the CPP currently has $366 billion invested south of the border, compared to $98 billion in Canada. And the CPP isn't an outlier. A closer look at the "Maple Eight" – Canada's top pension funds – reveals they collectively hold an astonishing $1 trillion in U.S. assets!
For instance, OMERS (Ontario Municipal Employees Retirement System) has 55% of its portfolio in American investments, and the PSP (Public Service Pension) has 40.5%. Only a handful of these major funds, including the Healthcare of Ontario Pension Plan, the Ontario Teachers' Pension Plan, and the Alberta Investment Management Corp., have a greater allocation to Canadian assets.
When questioned about these U.S. investments, CPP spokesperson Michel Leduc acknowledged the growing concerns about geopolitical risks. However, he stressed the fund's long-term investment horizon. "We are not easily whipsawed 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 47% U.S. allocation is actually below the average seen in global investment benchmarks like the MSCI World Index and the FTSE 100, which typically feature around 65% U.S. content.
But here's where it gets controversial...
Daniel Brosseau, president of Letko Brosseau Global Investment Management, argues that pension funds have a broader economic impact than just funding retirements. "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 invest more domestically, highlighting that Canada has about $3 trillion in "dry powder" available for investment.
Economist and Senator Clément Gignac agrees, noting that the U.S. market has become increasingly unpredictable under the Trump administration. He believes the risk-return profile has shifted, prompting Canadian pension funds to re-evaluate their U.S. exposure.
In response, Canada's Finance Minister François-Philippe Champagne has met with the Maple Eight to discuss new ventures and encourage more domestic investment. "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," Champagne mentioned.
However, the government has refrained from imposing regulations or mandatory "Buy Canadian" policies, a stark contrast to the pre-2005 era when foreign ownership limits were in place. Keith Ambachtsheer, who was part of the campaign to remove those caps, believes global diversification is crucial for pension funds. He's not surprised by the large U.S. holdings, given its status as a major global capital market. "The good news is when you measure it as to how we've actually done the last 10, 20 years, it's pretty good," he remarked, pointing to the CPP's average annualized returns of 8.4% over the last decade.
And this is the part most people miss...
While many pension funds are exploring new ventures in Canada, particularly in large-scale projects like infrastructure and utilities, their primary objective remains low-risk investments with predictable, long-term returns. As CPP's Michel Leduc put it, "The fund is not managed according to any whims. We are acting on very clear objectives in the [Canada Pension Plan] Act, and not based on sudden, impulsive, unpredictable desires."
What do you think? Should Canadian pension funds be pressured to invest more at home, even if it means potentially lower returns or higher risks? Or is global diversification the most prudent strategy for securing retirement for millions of Canadians? Share your thoughts in the comments below!
