Study pits ‘buy Canada’ push against data showing offshore stocks still beat TSX
Canadian pension funds earn higher returns when they back Canadian venture capital and private equity than when they invest in similar funds abroad—but renewed “buy Canada” pressure is largely aimed at public markets that have badly lagged the US and other peers.
A Fraser Institute paper, The Debate Over Canadian Pension Funds’ Domestic Investments by Douglas Cumming, Sofia Johan and Pedro Monteiro, uses theory and data to weigh proposals to push pensions further into domestic assets.
Using PitchBook data for 2000–2021, the authors show that Canadian pension investments in Canadian alternative funds, especially venture capital and private equity, generally outperform their foreign fund allocations.
For venture capital, average internal rates of return (IRRs) for Canadian pension investments reach 25.8 percent in Canadian funds versus 4.9 percent in foreign funds, a gap that is statistically significant. Median IRR is 14.8 percent for domestic VC and 3.6 percent for foreign VC.
Total value to paid‑in capital (TVPI) tells a similar story.
Across all alternative funds, average TVPI is 1.9 for Canadian funds and 1.6 for foreign funds, with statistically significant differences.
Domestic venture capital shows a TVPI of 1.5 versus 1.6 for foreign VC, while domestic private equity records 2.1 compared with 1.7 for foreign private equity, with higher median TVPI for domestic buyout funds.
Regression models that control for vintage year, industry, country effects, fund size and number of limited partners confirm the pattern.
The interaction between Canadian public pension investors and Canadian funds is positive and statistically significant for venture capital and private equity on both IRR and TVPI.
The same interaction points to weaker performance in domestic real‑estate funds and some “other” fund types.
The authors argue that information asymmetries, illiquidity, limited access to top foreign funds, and stronger local networks help explain why Canadian pensions do better in Canadian private equity and venture capital than abroad.
The paper contrasts this with public‑equity experience.
Based on the Capital Asset Pricing Model, an efficient global portfolio would hold Canadian stocks roughly equal to Canada’s 3 percent weight in global market capitalisation.
Yet Canadians display a strong home bias, and some advisors recommend 9 percent–31 percent domestic equity allocations.
To quantify the cost of a strict domestic rule, the authors compare index performance from January 2005 to November 2025.
A $100 allocation to the TSX Composite Index grows to $329.49.
The same $100 in the S&P 500 climbs to $570.06, or 173 percent of the Canadian‑only outcome.
They say forcing a Canadian‑only equity mandate over this period would have been “tantamount to imposing a 73 percent tax on pension returns,” based on the return gap between Canadian and US equities.
They link Canada’s weaker stock‑market performance since 2015 to economic and regulatory policies during the Trudeau era and to increased economic policy uncertainty.
After the repeal of the Foreign Property Rule in 2005, Canadian funds sharply reduced their domestic weight.
The Canada Pension Plan Investment Board, for example, held about 74 percent of its portfolio in Canadian assets in 2005; by September 30, 2025, Canada accounted for 12 percent of its portfolio, while the US made up 47 percent.
System‑wide estimates cited in the paper put total Canadian pension assets at $2,064bn, with $539bn (26 percent) invested in Canada and $1,525bn (74 percent) abroad.
Public equities total $428bn, of which $34bn are Canadian; private equities total $449bn, with $33bn in Canada.
OECD data for 2023–2024 show Canadian pension assets at US$3,543,447m, equal to 157.6 percent of GDP, and report that Canadian funds are roughly average in foreign‑asset shares compared with other pension systems.
The federal government’s 2024 budget named former Bank of Canada governor Stephen Poloz to lead a working group to “catalyze” domestic investment opportunities for pension plans.
The Fall 2024 Economic Statement introduced initial measures to encourage more investment in Canadian assets.
The authors accept that domestic mandates might target social benefits—such as infrastructure and data‑centre investments that generate wider economic gains—but argue that social and private returns usually move together.
If mandatory Canadian allocations leave pensioners significantly worse off, they question whether such policies are justified, especially if they crowd out other investors and misprice assets.
