The recently announced changes by the Canada Pension Plan (CPP)board should arouse the ire of all Canadians.
No longer is the board continuing its conservative investment ways; it now is placing funds in companies worldwide. Yet, as The Economist wrote, “Canada needs more direct foreign investments,” not Canadian investments placed in other nations.
Not long after the CPP board made a $6.3-billion investment in the United States’ retailer Bergdorf Goodman, owner of Neiman Marcus. That was preceded by a $320-billion acquisition of Orppea, a provider of special health services, located in Europe; and a $20-million alliance with Shapooji, a construction company situated in Mumbai.
What is the justification for placing huge amounts of Canadian derived funds in non-Canadian enterprises, when we have tremendous capital requirements?
For instance, the Keystone Pipeline project would call for $5.4 billion; Montreal Champlain Bridge repairs will require at least $200 million; overhauling Toronto’s Gardiner Expressway will cost about $200 million.
In addition, we have infrastructure deficiencies, such as airports, railways tracks, and mending underground electric wiring and sewage systems.
The pattern of the Canada Pension Plan is unjustified as Canadian needs are so extensive. Some of these undertakings could be financed by an innovative lead/spend plan or toll roads, without incurring budget deficits and still yield good returns on money so invested.
While the return on foreign commitments may appear appealing, there are counter-balancing negatives. Investments in foreign nations are fraught with risk, as history has demonstrated.
For instance, the Yale University Endowment Fund placed funds in a Chinese retail chain and Russian timberland. Subsequently that fund lost half its value.
JP Morgan purchased shares in Hoogovens, a Dutch steel company to take advantage of the European Union’s economic integration. That company’s shares fell precipitously, and the holdings were sold with difficulty as shares were not easily traded. This obligation turned out to be a financial disaster.
Evidence confirms that it is difficult to analyze investments in foreign nations as reporting standards and supervision are not as adequate as in North America. Government regulation overseas is not as rigorous as here.
For its entire existence Canada has had to import foreign capital. Therefore, Canadian funds should be placed in Canadian enterprises. Reflecting righteous anger, CPP investments policies need a long-overdue overhaul.