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The federal government is looking at removing investing limits on Canadian pension funds buying into domestic companies.
As part of the fall economic statement, released on Tuesday, Ottawa said it is exploring the option of removing a 30 per cent cap on pension funds’ voting shares in corporations.
“The government will explore removing the '30 per cent rule' from investments in Canada. The 30 per cent rule restricts Canadian pension funds from holding more than 30 per cent of the voting shares of most corporations,” the fiscal document said.
The change will also come with a transparency requirement requiring that all pension plan investments be disclosed to the Office of the Superintendent of Financial Institutions (OSFI), the document added.
Pension funds have “potential to boost Canada’s economy and create good careers for people across the country,” the government said in its economic update document.
One expert raised questions about how the changes will work in practice.
Bill Robson, chief executive officer of the C.D. Howe Institute, told BNN Bloomberg on Wednesday federal government could be addressing critics who say pension funds are not investing enough in Canada, Robinson said.
However, the removal of the 30 per cent rule may not appeal to these types of investors, he added.
“If we want to see more investment in Canada by these big institutional investors, it’s not going to be through the public equity markets,” Robinson said. “I’m not sure about this direct ownership in a larger percentage. They need more of the kind of assets that they want to hold.”
He pointed to infrastructure, airports, roads and utilities as the preferred sectors pension funds like to invest in, but noted that a lot of these assets in Canada are government-owned.
Robinson argued that privatizing these kinds of projects would be more likely increase institutional investment.
“Suddenly you’d have this new very attractive asset class for these investors,” he said.
A long-time Canadian institutional investor is in full support of removing the 30 per cent rule due to the benefits he thinks it will bring for pensioners.
“It will have no impact in terms of incentivizing pension funds to invest domestically, but what it will do is return more money to pensioners,” John Ruffolo, founder and managing partner at Maverix Private Equity and former CEO of Omers Ventures, told BNNBloomberg.ca in a telephone interview on Wednesday.
Pension funds already found legal mechanisms to get around the 30 per cent rule, he added, but they incurred costs to do so.
“It really surprises me that it (the 30 per cent rule) stayed this long,” he added.
One thing that caught Ruffolo's attention within the fiscal update proposal was the possibility of increased transparency for pension fund investments.
"That rule is saying to the pension funds 'We can’t force you to invest more in Canada, but we’re kind of watching,’" he said.