Earlier this week, Ron Mock, the head of the Ontario Teachers' Pension Plan, said he sees great opportunity in Canadian infrastructure. That's wonderful news. The Canadian Federation of Municipalities meanwhile, reckons about a third of the country's municipal roads, water facilities and sewers are in deplorable condition. Let's hope Mr. Mock's assessment is based on an objective analysis of profitability. We're compelled to ask because there appears to be a movement afoot to divert Canadians' retirement savings to the cause of nation building.
Last week, a spokesperson for for Ontario Finance Minister Mike Sousa told the Globe and Mail "We know that countries around the world like Australia and England are benefiting from Canadian pension fund investments and it's important that we see the same sort of investment in our own economy."
One can appreciate the sentiment. A pile of cash represents a great temptation. Canada Pension Plan Investment Board has net assets of more than $234-billion, Teachers more than $140-billion, Ontario Municipal Employees Retirement System more than $65-billion. Even a sliver of that hoard could twin many roads, finance a lot of wind farms and incubate the next Blackberry Ltd.
Canada's leaders definitely should be seeking ways to boost investment, but let's flush from the political system the idea of raiding the pension funds before it picks up steam. Mr. Sousa's representative appears to be confusing sovereign wealth funds with pension funds. The former tend to invest royalties. The latter are entrusted with the earnings of individuals. It is an important distinction. The duty of pension funds is to augment the contributions of its members so they can retire in comfort. Over the years, Canadians have come to accept that active management of pension funds is worth the inherent risk, and that work is left to investment professionals. If politicians want cash for projects, they should look elsewhere.
The remark appears directed at CPPIB, which has invested in companies such as Arqiva, which owns a network of transmission towers in Britain, and Westlink M7, a 40-kilometre toll road in Sydney. (It also is a co-owner of Ontario's Highway 407 toll road and the principal owner of a portfolio of Saskatchewan farmland and a handful of energy companies working in the oil sands.) Mr. Mock told a conference in Toronto Wednesday that about 70 per cent of Teachers' private investments are outside of Canada. "As a fiduciary, we really do have to focus on earning the returns on behalf of the teachers," he told The National Post.
There are more legitimate ways for Canadian governments to fund infrastructure.
Lawrence Summers, the former U.S. treasury secretary, advocates taking advantage of borrowing rates that may never be this low again. Canada's federal government this year borrowed more than $2.5-billion through 50-year bonds at an interest rate of less than 3 per cent. Yet the money appears to have no greater purpose than to help with routine debt management. Ontario, to its credit, recently issued debt to raise money for green infrastructure. Canadian governments should get over their balanced-budget fetishes and do more of such targeted borrowing. They have nothing to fear: the International Monetary Fund said in October that borrowing to fund infrastructure tends to more than pay for itself.
Pension funds can help. They even may want to. "I think that is a vital opportunity in Canada," Mr. Mock said. CPPIB and Teachers were trailblazers in moving beyond bonds and blue-chip stocks. Now other public pension funds are becoming active asset managers, including Japan's massive Government Pension Investment Fund. This is becoming a crowded the field, making it harder to win the best investments. Everyone from the Group of 20 to the World Bank to Canada's international development minister is talking about ways to leverage pension funds through public-private partnerships and by creating match-making services that would connect money and projects.
These efforts show promise. The difficult business of investing in infrastructure should become less so, which should in turn cause more money to flow. If Ontario or any other government wants some of that cash, they need only design attractive projects. But there should be no attempt to coerce or cajole domestic pension funds into investing in Canada. They're obliged to consider the interests of Canadians, not the country.
Editor's note: An earlier version of this story said Ron Mock told a conference that roughly 70 per cent of the Canadian Pension Plan Investment Board's private investments are outside of Canada. In fact, he was speaking about the Ontario Teachers' Pension Plan's investments.
Kevin Carmichael is a senior fellow at the Centre for International Governance Innovation.