Homegrown Gains: Desjardins Urges Canada’s Pension Giants to Invest Locally for Bigger Returns

A minor adjustment in the allocation of Canada’s massive pension fund investments toward local assets has the potential to result in “significant benefits” for the home market, according to a recent report from Desjardins Economic Studies.

The majority of the funds’ approximately $3.6 trillion in investments are presently allocated to international assets, as noted by Desjardins foreign exchange strategist Mirza Shaheryar Baig. However, there is a desire for alteration among both governmental bodies and financial institutions.

Given their substantial size compared to the domestic market, alterations in their asset distribution or currency hedging strategies could significantly affect financial markets. Present market conditions indicate potential room for adjustments.

Of the $3.6 trillion—amount which significantly surpasses the collective worth of all Canadian mutual funds and exchange-traded funds—that sum includes approximately $1 trillion overseen by the Canada Public Pension Investment Board (CPPIB) and the Caisse de dépôt et placement du Québec (CDPQ), according to Baig’s statement. The remaining portion is held within “a variety of employer-based or trusteed pension schemes” like the Ontario Teachers’ Pension Plan.

More than $100 billion set for investment this year

The funds generate revenue through both investments and worker contributions, while simultaneously disbursing benefits. Any surplus must then be reinvested, as noted by Baig. This sum tends to be quite substantial and often gets directed towards foreign investments. According to the Desjardins report for 2024, approximately $105 billion remained after these transactions; of which $31 billion came from additional contributions and $74 billion stemmed from earnings via investments. It’s expected that a comparable figure will probably have to be spent this year too.

A growing trend aimed at motivating investments within Canada might be gaining momentum. According to Desjardins, various minor provisions in the federal government’s recent Autumn Economic Statement indicated

intended to promote greater investment from local retirement funds

, and following this, the “Buy Canadian” initiative driven by trade disputes with the U.S. has amplified the impact of these investment funds’ financial power.

into even sharper focus

This week, the CEO of CPPIB told The Canadian Press in an interview that the fund stated

“enthusiastic” about investing in possible major infrastructure initiatives

promoted by the recently elected Prime Minister, Mark Carney.

In general, implementing sound macroeconomic strategies and fostering an investor-supportive atmosphere could lead to achieving the optimal outcomes for all parties involved.


Shaheryar Baig Mirza, from Desjardins Economic Studies,

The government would have to expand upon the “adjustments” made in the Fall Economic Statement to enhance the investment environment for these funds, as noted by Baig. However, achieving this could lead to a beneficial outcome for all involved.

Baig suggests that “expanding investments in infrastructure over the next few years could align well with the fund’s long-term goals.” He adds that “enhancing capital markets and promoting increased company listings within Canada would also contribute positively.” In summary, he believes that effective macroeconomic strategies combined with a supportive investment climate could successfully meet multiple objectives.

The report indicates that shifting just 1% of investments from international assets by the social security funds could result in approximately $10 billion available for investment within Canada. Similarly, such a reallocation by the entrusted pension funds would provide roughly $24 billion for domestic investment.

An ‘outperforming’ loonie

The report also highlights another potential influence area for these funds: foreign exchange rates and the Canadian dollar, commonly known as the “loonie.” Many of their U.S. dollar-denominated assets remain unprotected from currency fluctuations due to the longstanding perception of the greenback as a secure investment option. This assumption anticipated a rise in the value of the American dollar relative to the loonie amid unpredictable market conditions. Nevertheless, notes Baig, this viewpoint is currently facing scrutiny. The loonie appears significantly underestimated based on various measures.

Baig indicates that if the funds modify their currency hedge ratios, “a relatively small hedging strategy could result in the Canadian dollar surpassing its typical correlation with key factors” like interest rate spreads.

Even though the report states that “significant benefits can be achieved,” it also warns that establishing an environment conducive to realizing these advantages might prove difficult. As Baig points out, “Foreign investments have consistently performed better than domestic ones over recent years.” Additionally, he suggests that adjustments in governmental strategies may require considerable time before they lead to alterations in long-term investment goals.