The Portfolio Management Association of Canada (PMAC) is adding its support to Ontario’s proposed elimination of the rule that prevents pension plans from owning more than 30 per cent of a corporation’s voting shares.
The association noted it supports prudent person standards that rely on plan administrators’ discretion as they invest assets.
Legislation has gradually been moving towards such an approach, PMAC president Katie Walmsley and BlackRock Asset Management managing director Margaret Gunawan pointed out in a letter to the Ministry of Finance on April 29. For example, plan administrators can’t invest more than 10 per cent of the plan’s total assets in one entity, but recent changes allow that limit to reflect their market value rather than book value.
The letter follows the Ontario government’s release of its proposed amendments to the 30 per cent rule. Comments on the proposal were due by April 29.
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PMAC does not, however, agree with the disclosure requirements or undertakings Ontario would require if a plan administrator directly or indirectly holds securities to which are attached more than a certain threshold of votes that may be cast to elect a corporation’s directors.
“We support measures that are designed to protect pension plan beneficiaries and ultimately, that ensure fiduciary obligations to members and beneficiaries are being met. However, we believe these undertakings and disclosure obligations are unnecessary and overly onerous for administrators and corporations,” Walmsley and Gunawan wrote. “We recommend these be removed otherwise; the elimination of the 30 per cent is not in reality being adopted.”
They suggest that managers adopt prudent person standards and portfolios be monitored and assessed as a better solution than the disclosure requirements or undertakings.
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“In our view, investment rules should be set out as broad principles and most of the prescriptive quantitative restrictions should be abandoned as they do not address all of the portfolio diversification issues nor risks inherent in investments included in a pension plan,” they wrote, citing geographical risk and derivative exposure.
PMAC also recommends Ontario wait to implement the amendment until the federal government conducts its review on the 30 per cent rule, as announced in the 2016 budget. Doing so would “ensure that the amendments are co-ordinated on a national scale and harmonized such that provincial jurisdictional differences do not impede on the efficiency and co-ordination of pension regulation in Canada.”