OP-EDs

Over the past 30 years, pension funds have accumulated trillions in pension assets by investing in high-performing global portfolios. Key to their success has been the ability to invest free from government pressures.

Bridging a global infrastructure investment gap of nearly $15 trillion by 2040 requires
governments to create stable macroeconomic, legal and regulatory environments that
lower the cost of capital and foster long-term partnerships with institutional investors
such as pension funds, whose patient capital and aligned interests can drive sustainable
infrastructure development and deliver stable returns for beneficiaries while supporting
societal progress.

Pursuing economic prosperity by transitioning Canada to a clean, resilient, and digital economy is going to require a catalogue of infrastructure projects such as battery energy storage, green building retrofits, ports and data centres, and is going to be expensive . The trillion-dollar question is how to pay.

A well-designed pension system brings enormous social and economic value to its members and society as a whole. Unfortunately, Canada’s pension system does not stand out on the global stage. According to the Mercer CFA Institute Global Pension Index, Canada scores a B and ranks 17 out of 48 countries.

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Large-scale public and private infrastructure investments are required to meet a wide range of Canada’s current needs. For example, new transport systems, water and wastewater infrastructure are needed to resolve our housing shortage.

Challenges to Canadian sovereignty require expanded port infrastructure to open new trade routes. And decarbonizing the economy will require billion-dollar investments in green infrastructure, from battery energy storage systems to green building retrofits.

However, for many private sector employees the quality of the pension plan available to them leaves much to be desired. The typical private sector pension is a defined contribution plan, which means employees bear the risk of their investments and face the possibility of outliving their savings. Annual operating costs can reach between 1.5 per cent and 2 per cent of total pension assets for plans offered by small employers.

The total portfolio approach is gaining interest as a new investing strategy for pension funds and other asset owners, but its novel status may be deceiving. What is new and interesting is that, since the mid 2000s, some institutional investors in countries such as Australia, Canada, New Zealand, Scandinavia and Singapore have redesigned their entire investment framework to maximize the benefits of a total portfolio approach.

Driven by the net-zero pledge towards green investments, institutional investors are finding themselves uncomfortably wedged between a rock and a hard place.

Are our pension funds investing too little at home? Yes, according to a large group of business leaders in an open letter to the Canadian government. Finance academics who have long studied this question would disagree.

Retiring baby boomers are in an era of decumulation anxiety, as they convert their pension assets into income that they fear won’t hold up over the entirety of their retirement.

Pension funds spend billions on active investments that aim to generate “alpha” – the extra value above and beyond risk-adjusted returns. The problem is that in the long and complex chain of industry players connecting the real economy to the financial sector, pension funds are at the bottom of the value-creation chain.In my recent study, done jointly with Barbara Zvan and Eduard van Gelderen, we show how four large Canadian pension funds have taken control of the value-creation process in order to capture a greater proportion of the upstream value.

Pension funds spend billions on active investments that aim to generate “alpha” – the extra value above and beyond risk-adjusted returns. The problem is that in the long and complex chain of industry players connecting the real economy to the financial sector, pension funds are at the bottom of the value-creation chain.

The most difficult task for pension fund managers is to properly calibrate risk and return to make sure that pensioners earn a steady income after retirement.

The combination of ultra-low interest rates and high longevity is putting a major strain on retirement systems across the globe. A recent report by the World Economic Forum predicts that the global gap between retirement savings and retirement needs will reach $400trn by 2050.

With the global push toward sustainable investment, investors are concerned about whether the cost of investing green will result in lower portfolio returns in the long term. Are there win-win strategies where green investments can generate high returns alongside positive environmental impact?

The increasingly charged and polarized politics surrounding the climate crisis have asset managers between a rock and a hard place when considering their investment strategy. Should they abruptly divest from stocks of fossil fuel industries?

The need to address the environmental impact of investments is clear, but what is less obvious is how to scale down fossil fuel investments in a way that balances the interests of all the stakeholders involved. Should fund managers be making rapid, definitive decisions to completely divest from fossil fuel stocks, or should they consider withdrawing progressively?

The U.S. pension system, the Defined-Benefit (DB) model, in which employers commit to paying a pension to employees for as long as they live, is disappearing quickly among American businesses and is being replaced with the Defined-Contribution (DC) model where employees become responsible for their retirement.

One of the long-standing puzzles in finance is that the stocks of firms with high book values proportionately to their market values (value stocks) tend to earn higher returns on average than stocks with the opposite characteristic (growth stocks).