Much of the talk around increasing investment in Canadian companies and capital markets tends to focus on drawing in more investment, but in order to invest in Canada, there has to be something to invest in.
It’s long been an argument of pension funds and other institutional investors that if their local investments are limited, it’s in part because their duty is to produce returns for their plan or fund holders – and the investable universe in Canada just isn’t big enough to allow for that.
If the problem is partly structural, part of the discussion needs to be around how to increase not just investment in Canada, but also how to create more places in which to invest.
Here is what the experts we’ve spoken to over the last few months have suggested, to get the conversation started:
What the government can do:
- Look to other jurisdictions: Sovereign Wealth Funds, competitive tax systems and policy changes that boost productivity and improve competition have helped countries like Norway and Finland attract – and maintain – investment. Acting before the crisis deepens was also key.
- Consider how to make Canada an attractive investment destination for international capital: Making it easier for foreign companies or funds to invest in Canada through foreign direct investment (FDI) can help bring in capital, create jobs and connect the country to global markets. Where that capital is going also matters – in Canada, the energy sector is the main draw. Mergers and acquisitions have also dominated FDI, which points to acquisitions of existing firms driving investment, rather than new business creation.
What the financial industry can do:
- Encourage public listings: To combat the lack of IPOs and rise in private equity investment, collaboration with private equity firms and discussions around how to limit the chances their investment will be locked-up if they try to exit could be a good first step. It could also help bring back more transparency around asset valuations.
- Consider a mix of domestic and foreign investment: Some experts suggest funds can continue investment globally while also selectively keeping money at home to protect vulnerable sectors such as housing or the care economy, or to limit foreign ownership of critical infrastructure or assets.
What individual investors can do:
- Speak with your financial advisor: A little awareness can go a long way, and making sure your financial professionals know investing part of your money locally could help encourage them to look for opportunities at home. While financial advisors don’t act as market makers (that’s more the role of institutional investors), shifting investor sentiment could help push the conversation forward.
Looking at the structural barriers to Canada’s investing option isn’t the only piece to consider, but it’s one market players need to understand as part of the bigger picture – and as they consider opportunities to spur economic growth by keeping more capital at home.
