One of the main proponents of increased domestic investment from Canadian pension funds says there are two competing theories on the issue that each come to a different conclusion about what’s best for Canada’s pensioners and its economy.
“It’s a clash of titans, because we have two economic theories,” Daniel Brosseau, co-founder and partner at investment firm Letko Brosseau, told BNN Bloomberg in a Monday interview.
Brosseau and his firm helped bring national attention to the debate over where Canada’s pension funds should be investing by penning an open letter last month to Finance Minister Chrystia Freeland, urging policymakers to alter the rules for pensions to “encourage them to invest in Canada.”
The letter received pushback from some members of the business community who argued that government should not interfere with pensions’ investment decisions, but Brosseau believes that viewpoint doesn’t take the full macroeconomic picture into account.
“Portfolio management says that Canada is almost three per cent of world GDP, and three per cent of world markets, so a diversified portfolio should have just three per cent invested in Canada, and anything more is a bit overweight,” Brosseau said.
“But you have another theory, which is macroeconomic theory, that says a country should invest all it can in its own development, because that’s the way it’s going to increase its productivity, its incomes, its jobs, and its general wealth.”
Brosseau said the country’s national pension fund, the Canada Pension Plan (CPP), has around two per cent of its capital invested in Canadian private and public equities, with the majority invested in other markets.
He said this type of investment approach essentially cedes control of Canadian companies to investors from outside Canada, hampering the economy in the long run.
“Portfolio theory says to invest very little in Canada, and leave the control to foreigners, while macroeconomic theory says to invest all you can in Canada and keep control of your companies,” Brosseau said.
He added that despite his personal feelings on the issue, his main goal was to kick-start a conversation about it so that Canadians can be more informed about where their retirement savings are being allocated.
“It’s a question that needs to be asked and needs to be discussed. If people decide that the best thing is that we let that money go and we don’t encourage our own economy… if that’s best for the country, so be it, we’ll live with it,” Brosseau said.
“But it cannot happen by accident, so this discussion that’s going to occur is going to be quite important.”
And the discussion now has a moderator, as the federal Liberals announced in their budget last week that they’ve asked former Bank of Canada governor Stephen Poloz to examine ways to entice pensions to invest more at home.
Brosseau called the move “very positive,” and added that “(Poloz) has all the required skills and knowledge to be able to understand what the real issues are.”
With files from Bloomberg News
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