Canadian pension funds are among the largest and most advanced in the world, but a lack of adequate investment opportunities in this country are driving their capital abroad, the CEO of an investment company said on Tuesday.

Speaking as part of a panel at the Toronto Forum for Global Cities, Michael Rolland, the president and CEO of Borealis Infrastructure — a company that invests on behalf of the Ontario Municipal Employees Retirement System — said that pension fund capital is increasingly flowing into international projects.

“More of our money is leaving the country,” Rolland said, explaining that Borealis invests in some of the largest infrastructure projects worldwide. Borealis is responsible for investing roughly 20% of OMERS’ pension fund assets into infrastructure.

“We’d like to stay home and do our business,” Rolland added, “but I have an obligation to the pensioners to make sure I do a good job with their pension money. They’re counting on that money for their retirement. If the projects aren’t here, we’ll go anywhere in the world to find those right partnerships.”

Pension funds represent a major source of capital in Canada, and are frequently overlooked even though they have pools of capital much larger than those of the banks, Rolland said. Five of Canada’s pension plans are among the 100 largest worldwide.

Many Canadian infrastructure projects are too small to attract the interest of pension funds, which is why much of the capital is flowing abroad, according to Rolland. For instance, many municipal projects seek between $10 million and $30 million in equity, which is too small an investment for large-scale pension funds.

Rolland said infrastructure investments comprise a growing portion of the asset allocation of OMERS and many other pension funds. The sector is currently the most active portion of OMERS’ investment activity since infrastructure opportunities are exceeding all other asset classes, he said.

As a result, he said Canadian cities are failing to embrace a key opportunity to invest in infrastructure and grow.

Rolland added that Canadian pension funds are world leaders since they have large teams of investment professionals that seek investment opportunities themselves, while many funds around the world rely on external fund managers.

“We’re way ahead of most of the pension plans in the world,” he said, noting that Canadian pensions have advanced far beyond their traditional conservative approach and have drastically diversified their investments.

A key problem facing pensions in Canada, however, are the federal regulations, according to Rolland. For instance, pensions face limits on the amount of a company’s shares they can own, as well as ownership limits on real estate and Canadian resource properties. Such rules were put in place more than 20 years ago, and fail to accurately reflect the current investment environment for pension plans, Rolland said.

“Those rules need to change,” he said.

Specifically, the out-dated rules hamper pensions’ ability to invest in real estate and attractive, resource-rich investment opportunities in Canada. The regulations result in billions of dollars worth of lost income, Rolland said.

“You don’t see pension funds and big investors in Western Canada because they’re restricted,” he said. “It doesn’t take advantage of all the opportunities that have been there.”

Rolland said OMERS is lobbying to change the rules and is working to garner more municipal support on the issue.

IE