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Lack of pension and corporate funding is stunting Canada’s business growth: Industry leaders
‘We have been chasing capital and ambitious entrepreneurs out of the country’
Isabelle Hudon, president and CEO of the Business Development Bank of Canada; Richard Nathan, senior managing partner at Kensington Capital Partners and Priti Singh, senior managing director and chief risk officer at CPP Investments, speak with The Logic’s executive editor April Fong during a fireside chat, at the 2024 Logic Summit, Toronto, Monday Oct. 28, 2024. Photo: Christopher Katsarov Luna for The Logic
TORONTO — It’s not that Canadian entrepreneurs lack ambition, it’s that they lack financing to grow their startups into big, global companies, said Richard Nathan, managing director at Toronto-based Kensington Capital Partners.
At a time when venture capital funds are struggling for cash, more investments from pension funds, and lower taxes for investors, could facilitate Canadian startups’ transition into big, global companies, Nathan said on stage at The Logic Summit on Monday.
“We have been chasing capital and ambitious entrepreneurs out of the country,” said Nathan.
Talking Point
- Financing from pension funds and large companies could help fill funding gaps for Canadian companies at a time when venture capital deal-making has slowed, panelists said at The Logic Summit
Nathan’s remarks hit on intense debate over how to boost productivity and build more companies to the scale of a Shopify or BlackBerry.
Business leaders and policymakers are looking to pension funds as potential sources of untapped financing. In April, Finance Minister Chrystia Freeland enlisted former Bank of Canada governor Stephen Poloz to consider creating incentives for pensions to increase their domestic assets, responding in part to pressure from some parts of the business community. The Logic reported last month that Toronto-based asset management giant Brookfield had pitched the country’s largest pensions on a possible solution: a new $50-billion fund to back Canadian companies.
Some pension executives have resisted calls for more domestic investments, saying it compromises their mandates to maximize returns for retirees.
Nathan said Canada’s pension funds could adopt a model used in Quebec, where the Caisse de dépôt et placement du Québec has a dual mandate to maximize returns for pensioners while also stimulating the economy.
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Priti Singh, chief risk officer at Canada Pension Plan Investment Board (CPP Investments), said on the panel that about 12 per cent of the pension fund is already invested in Canada—an outsized share of its portfolio given the size of the country’s economy relative to others. Canadian companies in the infrastructure, digital infrastructure and private equity spaces are most likely to catch CPP’s attention, she said.
Isabelle Hudon, president and CEO of the Business Development Bank of Canada, said corporate venture capital could also provide scaling firms another source of financing. “It’s not something we see as much as, for example, in the U.S.,” she said, referencing a recent report from BDC and Deloitte Ventures, which found that six per cent of large Canadian corporations invested in venture capital, compared to 40 per cent of large U.S. firms.
Corporations invested heavily in Canadian startups and scaleups when interest rates were low at the height of the COVID-19 pandemic. They’ve since retreated amid higher rates and economic uncertainty.
Many have had to cut overall spending in recent years. Hudon said getting more of them to invest in startups and scaleups requires a cultural shift.
Read More from The Logic Summit
The calls for institutions and corporations to ramp up venture capital funding comes as traditional VCs are hurting for cash. Many investors bought into startups at record-high valuations during the pandemic, only to see a slowing market scupper their bets. The lethargic exit market in particular means companies haven’t returned money to their investors, leaving them little liquidity for new deals.
“The reason we put pressure on the companies we invest in is because of the pressure we are feeling from the other side,” said Nathan, referring to calls from limited partners for returns on their investments. Recent changes to the capital gains tax inclusion rate have created new challenges for investors, he added.
Entrepreneurs and investors have debated in recent weeks whether a lack of ambition is the reason Canada doesn’t have more large companies—as Shopify president Harley Finkelstein suggested on stage at the Elevate tech conference in Toronto earlier this month.
Hudon said that Canadian entrepreneurs can, in fact, be more ambitious. “We should not be shy [about] seeing the globe as our market,” she said. “The real ambition is to build global businesses.”
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