Canada’s economy is facing major headwinds, and while experts agree domestic and foreign investment is critical to the country’s growth, they say it needs to be targeted.
The federal government has embarked on a full-scale sales job, pitching Canada as a great place to invest amid lackluster productivity, slow growth and low investment rates – not to mention detrimental tariffs implemented by its biggest trading partner.
These moves have intensified pressure on Canada’s pension plans to invest more at home, as they collectively have upwards of $4-billion in assets but only a small percentage of that invested in Canada, with the rest deployed around the globe.
The right type of investments
The potential multiplier effect of encouraging Canadian pension funds and other foreign investors to invest in Canada could be huge – but whether that actually comes to pass depends on the types of investments being made, says Danny Parys, a fellow at Social Capital Partners and a strategy and governance consultant based in Montreal.
“If there was more of that investment coming in to build assets” such as those on the federal government’s ‘shovel ready’ projects list “that would be really positive,” he says. That would be particularly true if it sped up the pace of building new projects.
A higher level of investments can build infrastructure such as roads or renewable energy “that lowers the cost of doing business,” and that can be “a huge multiplier,” he explains.
“There’s also a lot of downstream effects (when) building a mine to create jobs, (and) there’s downstream technical expertise that gets developed in Canada, which I think is positive.”
But there can be a negative impact “if we’re just selling investment, whether it be for a Canadian pension fund or if it’s a foreign institutional investor, (where they may) just buy assets and extract value out of them,” he adds.
Friendly climate and strong returns
Canada’s pension funds used to invest only in Canadian assets, but over time they argued the funds weren’t diversified globally and the pension plans felt they weren’t able to garner the returns necessary to fund their guarantees to pensioners.
In the early 2000s, the government axed any Canadian investment requirements and the funds turned to mainly U.S. and international investments. That boosted returns, and meant the pension plans were all fully funded, which was good for workers and pensioners. But it also meant all that capital flowed out of Canada.
Canada’s pension funds “will invest in Canada if there are good projects to invest in,” says Jack Mintz, a senior fellow with the C.D. Howe Institute and the president’s fellow of the school of public policy at the University of Calgary.
Focusing on the country’s economics is “really important to encourage growth,” particularly since investment levels in the country have been “poor,” he says.
“If you want to get more pension funding here … the key is to try to create a more business-friendly climate, one that’s going to get more investment in this country.”
That means streamlining regulation and overhauling our tax system, he adds.
Bolstering the economy
The federal government’s Major Projects Office, which aims to fast-track projects and override some regulations, is a way to boost investment “and get more capital investment going,” Mintz says. The government can also encourage involvement by de-risking projects and co-investing in them with pension funds and other investors, he adds.
It’s clear that the goal of all these initiatives is to boost investment in Canada and ensure that the benefits accrue to the Canadian economy.
For example, the move to boost defense spending will be an accelerant for Canada’s economy, says Boston Consulting Group in an October 2025 report.
“The spending surge will create opportunities for companies across Canada’s industrial base, including for many that never considered themselves part of the defense sector. And it is poised to be a potential catalyst for economic growth and innovation,” the report says.
The trade deals Canada is embarking on with friendly countries in Europe and Asia can also boost growth, but the country also needs to be aware that such deals often come with trade-offs, says Armine Yalnyzian, an economist and Atkinson Fellow on the Future of Workers at the Atkinson Foundation.
If Canada strikes a deal to get investment on mining rare earth minerals, that might be in exchange for buying more finished products from a particular country. Many of these mining projects also require heavy government spending on infrastructure such as roads and other services, she says.
“The question is, what do we spend to get that investment; it isn’t just a one-way flow with money coming in,” she says.
Many trade deals also just want our raw materials, they’re not investing to build our processing capabilities to make value-added products, Yalnyzian adds.
Guardrails and ownership concerns
Several pension funds also invest in private equity investments whose focus is on boosting returns and extracting value, often through mergers and acquisitions of fragmented markets and that can lead to job losses and lower quality work, she says.
“All investment is not good investment,” Yalnyzian says, and we need “to put guard rails around our goals for investments,” to ensure they work for Canadians and the economy and don’t hurt vulnerable sectors such as housing or the care economy, which includes child, elder and health care.
Foreign investment can often result in Canadian companies getting scooped up by international owners rather than keeping Canadian ownership of companies started here, she adds.
“To what degree do we wish to be foreign-owned?”
Having Canadian companies owned by Canadian investors provides an advantage, says Parys, and that needs to be kept in mind when seeking foreign investment.
While most pension funds or institutional investors are relatively passive investors, “bringing in foreign investment is advantageous, but you can make the argument that you have a bunch of foreign ownership of critical infrastructure, or critical assets,” he says.
“There’s a lot of control that gets given away,” he says.
What’s the risk of having less investment in Canada and its companies? See what the experts have to say here.
