OMERS is calling on the Ontario Expert Commission on Pensions to abolish investment rules for pension funds.
It says that rules that restrict how much pension funds can invest in certain assets cost them billions of dollars of lost investment income and should be removed from Ontario’s Pension Benefits Act. At the same time, pension regulations should move from rigid rules to principles and to a cooperative regulatory model based on constructive industry consultation, it argues.
The federal investment rules included in the Pension Benefits Act limit pension funds to owning no more than 30% of a company’s shares eligible to elect a board of directors. Of book value assets, they can invest only 5% in a single parcel of real estate or Canadian resource property, 15% in all Canadian resource properties, 25% in all real estate and Canadian resource properties, and 10% in any one entity.
“These rules are not only commercially bizarre, they’re anti-Canadian,” Michael Nobrega, OMERS president and CEO, told the commission. “Consider the restrictions on Canadian resource properties. These rules limit how much we can invest in Canadian resource properties but we can invest in resource companies in Europe, Asia or South America. So much for Canadians enjoying the global commodities boom through their pension funds.”
He described the 30% rule as equally bizarre. Canada is heavily populated by small and medium sized firms that need capital to grow. “In taking ownership of these companies to strengthen their governance and financial performance we are forced to surrender the right to vote all our shares. Controls like this, with no clear purpose, can be considered anti-Canadian small business,” he said.
Pension funds are forced to construct elaborate financial, legal and organizational structures to comply with the rules and achieve an appropriate level of influence over their assets, OMERS noted. “These quantitative rules reduce our annual investment returns by 100 to 200 basis points a year. Over the past decade, we are talking about billions of dollars of lost income.”
OMERS urged the Commission to ask the Ontario Minister of Finance to suspend the rules immediately for three years while government studies the issue further.
OMERS is one of Canada’s largest pension plans, with more than $48 billion in assets invested around the globe in publicly-traded investments, real estate, infrastructure and private equity. It provides pension services to approximately 372,000 active and retired members on behalf of over 900 employers across Ontario.