A change in Canadian law may open opportunities for U.S. fund firms. Wednesday the Canadian government dropped a 30-year-old rule that had kept Canadian retirement plans from investing more than 30 percent of their assets outside of Canada. Canadian mutual funds and pension plans manage some C$1 trillion in assets.
That restriction was dropped entirely as part of the annual budgeting process, catching some in the Canadian fund industry by surprise. Observers had expected the cap to be modified but not dropped altogether.
Speaking to the Toronto Globe and Mail
, Bill Holland, chief executive officer of CI Fund Management Inc., said the change will be fundamental to the fund business in Canada.
"I'm shocked. I just didn't think [the government] had it in them," he told the paper. "I guarantee that everyone in our business will be stunned."
For American providers, the change in rules will allow products targeted at retirement plans that invest exclusively in U.S. securities. That would allow providers to offer products with the same portfolios on both sides of the border.
Tracking the 30 percent cap had made managing money for Canadian plans more complex. It had also provided a niche for Canadian-based fund firms to exploit. In some cases that had allowed pension plans to skirt the cap by offering derivatives and swaps. Now, those plans will be able to invest directly and presumably more cheaply. In addition, those strategies are too complicated for individuals to use.
The Canadian dollar dropped 1.6 percent to 80.31 cents on the U.S. dollar on word of the changed rules.
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