August 1, 2017

The 'Canada Model' For Pension Fund Management: Past, Present, And Future

“The new institutions we have created to administer and invest pension monies must have adequate management and be rendered legitimate. They have to be autonomous institutions, be accountable to their constituencies, and free from any suspicion of conflict of interest.

FROM “THE UNSEEN REVOLUTION”PETER DRUCKER, 1976

“Ontario taxpayers could potentially benefit by at least $1.2 billion over a period of 10 years if all public sector pension assets were invested competitively through financial markets. Plan sponsors should ensure formal processes are in place for holding pension fund governors accountable for results. This includes governor decisions whether to outsource or insource the investment function, and ensuring that internal investment managers are competitively compensated.”

FROM “IN WHOSE INTEREST?”TASK FORCE ON THE INVESTMENT OF PUBLIC SECTOR PENSION FUNDSREPORT TO THE TREASURER OF THE PROVINCE OF ONTARIO, 1987

 

The Past

Twenty years after the publication of “The Unseen Revolution”, Peter Drucker would write this about his 1976 book on pension politics and management: “No book of mine was ever more on target when it was published, and no book of mine has been more totally ignored”. Fortunately, I did read it at the time and took its key messages (see above) to heart, as evidenced in my own book “Pension Funds and the Bottom Line” (1985). Two years later, the creation of Ontario’s Task Force on the Investment of Public Sector Pension Funds by Treasurer Robert Nixon opened a window to actually put Drucker’s messages into practice (see the [somewhat restated] quote from the Task Force Report above).

In short, based on Drucker’s principles, the Report recommended that pension funds should have a clear mission, have a strong independent governance function, and be able to attract and retain the requisite talent to be successful. 

The most tangible outcome of the Task Force’s Report was the creation of the Ontario Teachers’ Pension Plan (OTPP). The prior plan (Teachers’ Superannuation Fund) had been a government bureaucracy for decades, with all of its assets ‘invested’ in non-marketable Ontario bonds. Treasurer Nixon and Margaret Wilson, President of the Ontario Teachers’ Federation (OTF), jointly agreed to transform the teachers’ pension plan bureaucracy into the Drucker model recommended by the Task Force.

You're only reading an excerpt of this letter. Advisory Service clients have access to full issues of the Ambachtsheer Letter.

Become an Advisory Service Client
or Login
Back to Top