When it comes to running pension plans, Canada punches well above its weight. As of the end of 2024, Canadian funds were managing an estimated $4.5-trillion (US$3.267-trillion) in pension assets. This places Canada third globally in assets under management, less than $35 billion behind second-place Japan. Canada ranks second globally for pension fund assets relative to GDP, behind only Switzerland.
Canadian pension funds also consistently generate higher measurements of asset performance and demonstrate stronger liability risk hedging than their global peers. Remarkably, as of 2021, Canada’s 10 largest pension funds were fully funded, with enough cash or other assets to cover all of their obligations to current and future retirees. By comparison the 25 largest U.S. pension plans only averaged 78 per cent funding, despite the Canadian funds using more conservative discount rates.
Of this Canadian pool, over $2.5 trillion is held in trusteed pension funds (TPFs), defined as registered pension plans managed under a trust agreement, usually sponsored by employers and funded through contributions from employers, employees or both. These contributions are directed into TPFs.
Public sector pension plans account for 81.2 per cent of total TPF assets. Within public sector pension funds, one group stands out: the Maple Eight, which manage some $2.3 trillion in assets. Then there are the next 25 largest public sector pension funds (I call them the Silver Maples).
With more than $5 billion in assets each, they collectively hold over $300 billion.
Canada’s public sector pension funds are global success stories, but to ensure that Canadians share more directly in their gains, Ottawa should introduce targeted incentives that bring more of this investment power back home.
A record-breaking injection
The Maple Eight’s domestic investments are less than half the global industry average. For every dollar managed by the Maple Eight, more than 75 cents are invested outside Canada. And when you exclude fixed income, most of which is invested in government debt, Canadian exposure drops to just 12 cents of each dollar. The Silver Maples, with asset mixes similar to the Maple Eight, follow the same pattern: Only four cents of every managed dollar are invested in Canadian real estate, three cents in public equities, two cents in infrastructure, two cents in credit, and one cent in private equity.
If Ottawa were to incentivize pension funds to double their stake in investments here at home —across real estate, public equities, private equity, credit and infrastructure — it would inject nearly one-third of a trillion dollars into the Canadian economy. That would be the largest influx of investment capital in Canada’s history. It would also help reverse the $350 billion in cumulative net outflows that have left Canada since 2016.
What to do with the public-service pension surplus that’s piling up?
Presently, the bulk of Canadian pension fund investments end up overseas, helping build ports in Dubai, railways in Europe, tunnels in Australia, highways in Mexico, nuclear power plants in the U.K. and renewable power in India.
To put those figures into perspective, the government-funded Trans Mountain Expansion pipeline project cost $34 billion to build, yet it nearly doubled Canada’s non-U.S. oil exports and added 0.25 per cent to GDP. Another benefit has been higher per-barrel prices for Canadian crude, as the Western Canadian Select discount narrowed due to a more diversified export base.
Another major infrastructure project opened earlier this year in Kitimat, B.C., the $40-billion LNG Canadafacility to export liquefied natural gas to Asia from B.C. It is expected to add 0.4 per cent to Canada’s GDP.
One way Ottawa could increase much-needed capital from Canadian pension funds would be to mandate them to invest a certain portion of their assets domestically, perhaps even in specified asset classes such as infrastructure.
Several countries — including Austria, Belgium, Denmark, Germany and South Korea — impose such limits on foreign investments. CDPQ, one of the Maple Eight, already operates under a dual mandate: maximizing returns while investing in Quebec. AIMCo, which recently saw an overhaul in upper management, is reportedly considering a similar dual mandate.
The case for such policies is straightforward. Public sector wages — and public sector pensions — are funded by Canadian taxpayers, and with Canada projected to have the lowest per-capita productivity and GDP growth in the OECD until 2060, it is logical to assume that public sector wages and jobs will come under pressure, reducing pension contributions.
Domestic investment also offers other advantages to Canadian-managed pension plans:
- liabilities are paid in Canadian dollars, thus reducing currency risk;
- pension funds enjoy a home-court informational advantage, often leading to better risk-adjusted returns;
- domestic assets hedge liability risks since they are subject to the same interest rate and inflation shocks as pension obligations;
- moreover, domestic investments carry no risk of being expropriated by foreign governments.
However, governments mandating domestic investment has its pitfalls. If political interference were to undermine independent management and erode public confidence in pension funds, then excessive domestic concentration could make it harder for the funds themselves to sustain optimal returns and diversify risk.
There are, however, other options to incentivize Canadian pension fund capital back to Canada. Some examples include:
Prioritize infrastructure initiatives
Canada ranks as the second-slowest OECD member for the time required to obtain a general construction permit. Mining and infrastructure projects spend an average of three to six years in the federal regulatory process. The Major Projects Office represents a bold step forward in attracting investment. Its mandate is to serve as a single point of contact to get nation-building projects built faster. It does so in two principal ways. First, by streamlining and accelerating regulatory approval processes. Second, by helping to structure and co-ordinate financing of these projects as needed.
Right now, the Major Projects Office focuses exclusively on projects formally designated as being of national importance. To date, most of these initiatives have come from the natural-resources sector, with private corporations as the primary proponents. Yet nation-building is not limited to LNG terminals or copper mines. Ottawa should strongly consider extending this designation to major infrastructure proposals led by Canada’s public-sector pension funds. Granting these projects access to the Major Projects Office would not only accelerate their approval but also unlock the kind of large-scale, long-term investment that these funds are uniquely positioned to provide.
Encourage asset recycling
Pension funds are already attracted to infrastructure for its inflation-indexed returns, but Canada lacks enough investable domestic projects. Crucially, this tactic could be paired with an asset-recycling initiative, in effect a privatization of select existing assets — airports, ports, utilities, even energy infrastructure. Such moves would generate government revenue, reduce fiscal burdens and create investable assets for pensions while keeping more Canadian assets in Canadian hands.
Ottawa should also eliminate the 90-per-cent threshold that limits municipal-owned utility corporations from attracting more than 10-per-cent private ownership. An RBC study estimated that Canada needs an additional $2 trillion in new investment over the next three decades to overhaul the country’s energy systems.
Create tradeable Canadian infrastructure funds
The government could facilitate the creation of publicly traded infrastructure funds or a secondary-market clearinghouse, enabling pension funds to buy and sell stakes in Canadian private equity, credit and infrastructure. The U.K. has infrastructure investment trusts, and India’s National Investment and Infrastructure Fund serves as a platform to “crowd in” domestic and foreign capital. By combining this approach with selective privatization, Canada could unlock capital trapped in public assets, reduce the illiquidity premium for investors, and build a more dynamic domestic infrastructure market.
Launch a public-private growth fund
To address weak start-up investment and low R&D spending, Canada could launch a public-private growth fund. While pension funds typically avoid early-stage risks, structures could be designed to support scaling firms in integral areas such as technology, life sciences and clean energy.
The federal government already has the Venture Capital Catalyst Initiative program to stimulate and expand Canada’s venture capital ecosystem by “crowding in” private capital. This effort could be strengthened by creating a single platform, anchored by Business Development Canada, which would be limited to pension funds to invest in as limited partners. Vetting would then fall to a consortium with deep institutional experience. Thus, pension plans could invest at meaningful scale through one centralized, professionally managed vehicle.
Finally, BDC could backstop the first 10 to 20 per cent of losses in this fund, creating a bond-like floor to limit downside risk. Israel’s Yozma Program in the 1990s helped seed that country’s world-class tech sector, while Singapore’s co-investment schemes spurred innovation.
Canada’s pensions are global giants, but too little of their financial muscle supports Canada. With smarter policies — as opposed to mandates — this strength could be channeled into our own infrastructure, innovation, and growth.
If harnessed effectively, Canada’s pension success abroad could become the powerful engine of its prosperity at home.
