Despite the coronavirus-induced economic downturn, Canadian public pension funds have maintained relative success. In fact, for the last decade Canada’s public pensions have been revered as some of the world’s most successful, owning assets in real estate, infrastructure, and natural resources while maintaining large-scale yet diversified portfolios. Canada’s Pension Plan Investment Board (CPPIB) allocates over 18% of its public pension funds into these real assets and manages its assets in-house, cutting down on expenses. Canada’s public pension system is increasingly competing with sovereign wealth funds and other large assets and has had enormous success attracting larger funds to be co-investors. The CPPIB, unlike many other large wealth funds from countries such as China, has the benefit of being viewed as politically independent and are therefore attractive targets.
Canada’s current strategy was forged in the midst of the Great Recession where the pension made a radical shift from public markets to both global and private markets, providing liquidity to firms strapped for cash. These initial investments laid the roadmap for long term activism in the global sphere, and the CPPIB now owns significant stakes in everything from London’s Heathrow Airport to water treatment plants in the UK and real estate in Manhattan.
Today, Canada is increasingly focused on investing in emerging markets and is targeting India most closely. Currently, the CPPIB plans to invest up to one-third of its funds into emerging markets over the next five years. These investments will span a few different sectors, notably real estate, infrastructure, and public and private equities. The COVID-19 crisis has also caused massive disruptions in global markets, and especially India’s economy, which is where Canada sees an opportunity to invest in these distressed markets and fund long-term stable growth for India’s next economic boom.
There are many lessons the U.S. could learn from Canada to improve its public pension investing system, such as hiring more in house managers rather than contracting outside talent and focusing on making real investments in emerging markets in countries such as India, or other countries in Asia and beyond. Firms are eager to partner with Canada because they perceive its public pensions to be politically neutral and focused on the long term, the exact right combination for investment in something like an infrastructure project. If the U.S. could learn some lessons from Canada, public pensions for American retirees would surely benefit and move toward more long term stability—a desirable goal in the current economic climate.