Any changes to pension fund policies should carefully consider risks and rewards of domestic investments

Dozens of business leaders recently signed an open letter to Finance Minister Chrystia Freeland arguing that pension funds should invest more in Canadian businesses. But their argument doesn’t line up with the facts, writes Prof. Sebastien Betermier in an op-ed in The Globe and Mail. Academic research has shown Canadian pension funds allocate a large portion of their portfolio to domestic assets. Canada accounts for about 3 per cent of the global stock market index, and large Canadian pension funds invest about 20 per cent of their equity portfolio in domestic firms. Politicians should examine the issue carefully before making any decisions about how pension funds work, Betermier argues. Making more investments in Canada reduces portfolio diversification, but can also help hedge against inflation and interest rate risks.