Firms that are backed by pension fund investments report increases in employee productivity of between three per cent and five per cent, according to a new report by the International Centre for Pension Management.
The report, which is based on the collective research of 13 experts including representatives at the Canada Pension Plan Investment Board and the Public Sector Pension Investment Board, found this effect is relative to the size and duration of the equity stake of the institutional investor and is more concentrated in non-listed and smaller firms.
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An increase of one per cent in the combined equity stake of all funds investing in a firm raised productivity between 0.21 per cent and 0.22 per cent. It also found that when institutional investors maintained a positive equity stake of one year or longer, it led to a productivity gain of between 0.40 per cent and 0.50 per cent.
When a pension fund invests in a firm, said the report, it directly impacts four channels — supply of funding, investment in long-term objectives, positive signals to other financiers and improved corporate governance and engagement — leading to overall improved productivity at a firm. It also found that the presence of potential co-investors included in a deal didn’t affect the results, adding pension funds have a leg up in creating this impact in a firm compared to other institutional investors due to their long-term horizon granting them the capability to supply funds over an extended time period.
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While research regarding the impact of institutional investments on employee productivity and the broader macroeconomy is still in its infancy, the report noted there’s value in quantifying the benefits and costs of direct equity investments.
“More available and detailed data allows for more reliable econometric analyses and will make it easier to disentangle the roles of the various channels and their interactions, through which pension fund investments affect firm productivity.”
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