Federal pension manager shifts more focus to investing in Canada, other non-U.S. regions

Globe and Mail

3 days ago

The Public Sector Pension Investment Board is focusing more on investing in Canada and outside the United States after wild swings in markets tested the $300-billion fund, which earned 12.6 per cent in its fiscal year ended March 31.
Months of turmoil from tariffs and trade disputes, combined with the threat of punitive new U.S. tax measures, are prompting PSP Investments to think twice about where it makes its next deal.
PSP manages pensions for the federal public service, Canadian Armed Forces and the RCMP. More than 40 per cent of its assets are invested in the U.S. – double the 20 per cent it has in Canada. But with U.S. markets gripped by instability and political strife, PSP is looking at ways to refresh its portfolio.
'We're fully aware that the world has changed,' chief executive officer Deborah Orida said in an interview in Toronto on Thursday.
'I think it behooves us to think about other developed markets – maybe even some that we've not focused on as much before,' she added.
PSP's 12.6-per-cent return in the fiscal year missed its internal benchmark by 4.8 percentage points. About half of PSP's portfolio is made up of privately-owned assets, which mostly had strong returns but struggled to keep pace with benchmarks that are weighted toward publicly traded stocks, which surged last year.
PSP's annual return outperformed a reference portfolio that the fund uses to set its appetite for risk by 1.5 percentage points.
Over 10 years, PSP earned an average annual return of 8.2 per cent, beating its benchmark of 7.1 per cent. That translated to an extra $18.8-billion of investment gains above what the benchmark portfolio would have earned.
The fund's total assets increased 13.2 per cent to $299.7-billion from $264.9-billion in the previous year.
'I feel really good about the results,' Ms. Orida said. 'I think the portfolio showed both strength and resilience through the last quarter.'
PSP benefited from large gains on foreign currency fluctuations, mostly from exposure to U.S. dollars. Of PSP's 12.6-per-cent gain, 5.8 percentage points came from foreign exchange, as the Canadian dollar weakened relative to other currencies, making PSP's U.S. holdings more valuable.
The upheaval the U.S. instigated still put investors in a crisis mode. Even before U.S. President Donald Trump's 'Liberation Day' tariff announcement on April 2 sent markets plunging, PSP had set up a working group that tracked daily metrics such as its liquidity to make sure the fund could ride out any volatility.
'I thought we had a very interesting test in the post-'Liberation Day' market volatility in April,' Ms. Orida said. 'I'm very confident that PSP is well positioned to sustain or manage through volatility and maintain our focus on the long term.'
More recently, PSP created models to gauge the impact on the fund if the U.S. Senate passes a retaliatory tax measure – part of the 1,100-page One Big Beautiful Bill it is still debating – that would remove long-standing tax exemptions for entities such as government-sponsored pension plans.
That would make it significantly more expensive for Canadian pension funds to cash out of U.S. investments.
'We've done some work. We think that it's manageable,' Ms. Orida said. 'I think the bigger impact would probably be on how much we want to incorporate it in into our underwriting for future investments.'
That could tilt the competitive edge toward other countries when PSP considers potential investments in Canada, Europe or Asia, and Ms. Orida said she is hopeful PSP can find more deals at home.
The fund recently made its largest Canadian investment, buying a multibillion-dollar stake in the 407 Express Toll Route, a highway that stretches across the Greater Toronto Area, from the Canada Pension Plan Investment Board.
'One thing that we've been asking ourselves as it relates to Canada is: Have we been historically underleveraging our home-ice advantage?' she said.