Download This PaperShould Canada Require Its Pension Funds to Invest More Domestically?
23 Pages Posted: 17 Jun 2024
Date Written: June 09, 2024
Abstract
We analyze the domestic investments of Canadian pensions funds, assess the risk-return trade-offs between domestic and foreign investments, and investigate the barriers to investing in Canada. We show that Canadian pension funds invest disproportionately large amounts of capital in Canada, particularly in bondlike asset classes such as fixed income and real estate. However, over the past decade their domestic investments have proportionally decreased as part of a shift toward global asset diversification. One driver of this decline is the lack of strategic assets available for sale in Canada, combined with the increased availability of such assets in other countries. We propose actionable solutions to mitigate the lack of strategic assets problem and create win-win outcomes alike for the Canadian economy and for Canadian pension funds. However, we caution against adopting government policies that mandate Canadian pension funds to invest domestically, as such policies will upset the funds' risk-return calibrations and expose pension plan members to potential financial losses.
Keywords: Pension Funds, Domestic Investments, Home Bias, Productivity
Suggested Citation: Suggested Citation
Keith Ambachtsheer
University of Toronto - Joseph L. Rotman School of Management ( email )
105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada