Canadian Pension Model 2, Critics 0

Contentious debate failed to derail CPPIB’s expansion or a new public pension giant’s creation.

Canada’s largest pension fund (CPPIB) can expect surging inflows, and its newest has officially launched, following two major policymaker decisions. 

The Investment Management Corporation of Ontario (IMCO) Act passed July 1—Canada Day—creating a new member of the Toronto mega-investors club. 

“The larger fund is expected to lower administrative costs, which will help improve return on investments.”The fledgling operation has a board of finance professionals, $50 billion in committed capital, and roughly nine months to staff up and start investing, according to the Ontario government. 

IMCO “will enable public-sector organizations to pool assets and create economies of scale,” the province’s Minister of Finance Charles Sousa said in a statement Thursday. “This will increase efficiency.” 

Whether bigger is indeed better for investing pension assets has been under hot debate in Canada for months. 

“The answer is unequivocally no,” Philip Cross—co-author of a CD Howe Institute study on the issue—told CIO in April. “There’s no evidence there are economies of scale.” The CD Howe Institute is one of two influential right-leaning think tanks waging vocal opposition to expanding Canada’s defined-benefit systems.

Canada’s leading investment consultant, Keith Ambachtsheer, entered an ongoing public back-and-forth with the other think tank (Fraser Institute) in defense of the Canadian model. 

“Our friends at the Fraser Institute have launched another Canada Pension Plan-bashing barrage,” Ambachtsheer wrote Tuesday, in a “reader’s guide” to a critical Vancouver Sun op-ed by the institute. He suggested the think tank’s attempts to discredit CPPIB stemmed from its opposition to “wealth transfers,” not the investment organization itself. 

The CD Howe and Fraser institutes officially lost the policy debate in recent weeks. On June 20, federal and provincial leaders agreed to expand Canada Pension Plan benefits, which will further swell its C$265 billion (US$204 billion) investment fund. 

IMCO’s launch marked the second triumph for Canadian-model advocates and the Ontario government, which led efforts to enlarge the national plan as well. It hailed both achievements in announcing IMCO’s creation. 

“The larger fund is expected to lower administrative costs, which will help improve return on investments,” the provincial finance ministry said. “The new board’s main priority will be to prepare the corporation to manage members’ funds in the spring of 2017.” 

The CD Howe and Fraser institutes have yet to issue responses. 

Related: The Great Canadian Pension Fight & Wiseman Defends CPPIB to the End

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