Brookfield, Ottawa, pensions discussing major fund, sources say #CanadaFinance

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The creation of a multi-billion-dollar investment fund seeded with federal government money and designed to attract additional investments from Canada’s large pension plans is among ideas put forward as former Bank of Canada governor Stephen Poloz pursues his mandate to help Ottawa find ways to direct pension billions into the Canadian economy, according to two sources with knowledge of the proposal.

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The sources, who spoke on the condition of anonymity because the talks have not yet been made public, indicate that global investment firm Brookfield Corp. pitched the proposal and could be an investor and possibly manage the fund, with hopes that pooled investment dollars would reach $50 billion.

Since Poloz was appointed in conjunction with last spring’s budget to lead a task force for Finance Minister Chrystia Freeland — an appointment that calmed pension executives put on edge a year earlier when Freeland raised the prospect of pressing the country’s largest pensions to increase their investment commitments in Canada — he has made the rounds talking to institutional investors and inviting thoughts from other interested parties. That is when Brookfield presented the pitch, according to one source.

While some had expected to hear public details about Poloz’s task force findings and next steps by as early as last month, the sources said it was determined that Poloz would present ideas first to Freeland based on what he has heard from a variety of stakeholders. He declined an interview earlier this month, saying he did not wish to jeopardize ongoing conversations with the government, but did not specify what was being discussed.

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The idea of a new government-backed fund being managed by one of Canada’s largest institutional investors is not without precedent; in 2023, the Public Sector Pension Investment Board (PSP Investments) was charged with managing the $15-billion Canada Growth Fund, an arms-length public investment vehicle created to encourage private sector investment in low-carbon projects, technologies, businesses and supply chains.

But the concept under consideration now is on a much broader scale, according to sources familiar with the proposal. The spring budget said Poloz’s working group would focus on how to “catalyze greater domestic investment” in digital infrastructure and AI as well as physical infrastructure, airport facilities, venture capital investments and building more homes.

Though specifics about how the fund pitched by Brookfield would work are not public, pension and political sources were cool to the basic idea, questioning what types of investments would be suitable both for international institutional investment funds and government, particularly ones with a specific focus on Canada.

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“Government objectives and investment objectives rarely align,” said Jim Keohane, a former senior pension executive and a member of Alberta Investment Management Corp.‘s board of directors. “The success of the Canadian pension funds is largely due to their independence from government.”

The wish list of Canada’s largest pensions such as the Ontario Teachers’ Pension Plan Board, AIMCo. and the Canada Pension Plan Investment Board has been fairly consistent. In keeping with their investment philosophy and track record around the world, they want to make large-scale investments with reliable long-term returns, and without undue risk including exposure to political whims.

The large pensions universally pushed back on Freeland’s initial entreaty, with some saying they already invest a disproportionate amount in Canada, given its relatively small ranking among global economies. All the major funds seek to diversity their investments geographically and by asset class to generate long-term returns that meet their obligations to retirees.

Prime Minister Justin Trudeau has been courting the multi-billion-dollar pension giants since shortly after his Liberal Party was swept to power in 2015. Previous attempts to seed with government money and draw in large-scale institutional money, such as the Canada Infrastructure Bank, have had limited success with limited institutional money.

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Canada’s major pensions invest in large infrastructure such as ports, toll roads and airports around the world, often when governments move to privatize them, but few such investments have been made available in Canada. It is unclear whether the new vehicle would satisfy what pensions want.

The fund proposal is likely to raise eyebrows in Conservative circles. Former Bank of England and Bank of Canada governor  Mark Carney, who is now chair of Brookfield Asset Management and head of transition investing at the investment management firm, was recently brought on to advise the Trudeau government on economic policy. Even before the fund proposal came to light, opposition Conservative Party members suggested Carney’s continued affiliation with Brookfield put him in a conflict of interest situation.

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