Desjardins' François Carrier warns that pension underinvestment invites foreign takeovers
Canadian pensions are underinvested in domestic public markets, leaving Canadian companies struggling for capital and vulnerable to foreign takeovers.
François Carrier, head of capital markets at Desjardins Group, highlighted this issue, according to Financial Post, stating that the lack of domestic investment creates significant challenges for Canadian businesses.
Carrier told Bloomberg News that this trend “sucks a lot of liquidity out of the market, which has an impact on valuations and your ability to grow and thrive as a public company.”
Canada Pension Plan Investment Board (CPPIB), the country’s largest pension fund, exemplifies this issue, with only 12 percent of its capital in Canadian assets as of March—a stark contrast to 70 percent in 2001 when limits on foreign investments were in place.
Currently, just 8 percent of CPPIB’s active equities portfolio is in Canadian stocks.
Japan’s Government Pension Investment Fund, by comparison, allocates nearly a quarter of its holdings to domestic equities. Bloomberg data indicate that Japan represents only 5.1 percent of the global equity market, compared to Canada’s 2.6 percent.
This underinvestment concerns not only Carrier; in March, more than 90 business leaders signed an open letter to Finance Minister Chrystia Freeland and her provincial counterparts, urging regulatory changes to “encourage them to invest in Canada.”
Freeland responded by commissioning former Bank of Canada Governor Stephen Poloz to investigate strategies to attract more pension investments into Canadian markets.
Poloz’s discussions have included potential solutions, such as regulatory adjustments allowing pensions to take a more activist stance in their investments or establishing a pooled fund to facilitate dealmaking for smaller pension plans.
In recent months, several Canadian mid-cap companies have been acquired by foreign entities, including Stelco Holdings Inc., now owned by Cleveland-Cliffs Inc., and Tricon Residential Inc., purchased by Blackstone Inc.
Carrier finds go-private transactions “always a little bit depressing,” seeing them as signs of a shrinking Canadian public market. Without adequate capital and fair valuations, Canadian companies are increasingly vulnerable to foreign acquisition offers.
Canada’s initial public offering (IPO) market has also been slow, raising less than $750m this year, mainly for financial vehicles like ETFs, according to Bloomberg data.
In response, Desjardins is expanding its corporate debt market activities beyond government debt, aiming to support Canadian companies in raising more capital.
Carrier believes that more capital “translates into better valuation, which makes for a more competitive stance on the M&A front, which then allows our Canadian issuers to thrive on global markets.”
Recently, the tone in merger and acquisition conversations has been more optimistic, Carrier noted.
Groupe Dynamite Inc., a Canadian apparel retailer, is in the process of listing on the Toronto Stock Exchange, while pharmaceutical company Apotex Inc. is preparing for an IPO next year, according to Bloomberg.
Carrier remains open to foreign acquisitions but remarked, “I just hate the fact that we’re making it so easy.”
