A lack of strategic assets can be a deterrent to domestic investment for large pension funds

In 2023, the Government of Australia suggested that some of the country’s pension assets might be used to fund social housing or renewable energy. The idea received mixed reception, and to understand why, Lachlan Maddock of Investor Strategy News looked to Canada, where a group of business leaders called for pension funds to increase their holdings of Canadian equities. Maddock quoted research published by McGill Desautels’ Associate Professor of Finance Sebastien Betermier. “When we consider the factors limiting domestic investment in Canada, we identify one major friction that deters Canadian pension funds from increasing their domestic share,” wrote Betermier. By these [the lack of strategic assets] we mean specific asset classes that demonstrate distinct strategic benefits to a pension fund portfolio so that pension funds can meet their mandate to deliver regular, cost-efficient income for pensioners and sustain a healthy pension system.”