The Portfolio Management Association of Canada (“PMAC”), through its Industry, Regulation & Tax Committee, is writing to express our support for the Ontario government’s proposed regulatory reforms (the “Proposal”) that would eliminate the current investment rule2 that prohibits plan administrators from making investments that result in pension funds owning more than 30% of the voting shares of a corporation. The government has indicated its plans to eliminate the “30% rule” from Ontario pension legislation in order to “open up new investment opportunities and tap the capacity of the pension sector to contribute more to economic growth.” This is a welcome development for large Ontario pension funds that engage in direct investing as well as for Canadian investors.
Collectively, our member firms manage investment portfolios for most of Canada’s pension plans, and as such, have special experience with the issues faced by pension plans, their administrators, advisers and portfolio managers with regard to the investment of pension plan assets. We support a regulatory framework for pension plan fund managers that provide greater flexibility to pursue investment strategies that mitigate risk, optimize return and allow appropriate diversification to meet plan liabilities. PMAC has previously argued in favour of eliminating investment restriction rules such as quantitative limits on the basis that these types of rules are outdated and unnecessary in a modern pension investment environment.
In our view, a better method than quantitative restrictions is to rely on prudent person standards. This method allows managers and plan administrators to use their expertise and discretion in constructing their portfolios. We note that the government has gradually been moving in this direction with recent legislative changes. For example, most recently, changes have been made to the Federal investment regulations which prohibit plan administrators from investing or lending more than 10 percent of the total value of the plan’s assets in a single entity. Recent amendments to the Pension Benefits Standards Regulations, 1985 (PBSR) amend a number of aspects of this concentration limit. The amendments modify the 10 percent limit so that it is based on the current value or “market value” of a pension plan’s assets rather than the “book value”.