“[The mission of a pension fund unlike other investors] is not to maximize returns, it’s really about creating stability in terms of risk...Investing in disruptive technologies like AI requires a different approach outside the major asset classes. We have invested in select companies to learn and acquire knowledge about how the technologies will impact business models in the five and ten years out” ... Eduard van Gelderen, Senior Vice President and Chief Investment Officer, Public Service Pension Investments (PSP) speaking at the 2024 AI Symposium hosted by Ivey Business School’s Lawrence National Centre for Policy and Management (LNC)
Eduard was joined by fellow panelists, Meghna Singh, Managing Director and Head of Strategy and Innovation, Alberta Investment Management Corporation (AIMCo) and Alison Loat, Senior Managing Director, Sustainable Investing and Innovation, OPSEU Pension Trust (OPTrust) for an insightful discussion, moderated by LNC’s Power Corporation of Canada Fellow, Mahmood Nanji
Pension funds play a vital role in the Canadian economy by investing in businesses and communities and providing financial security for millions of retirees. Their investment strategies are designed to balance the need for long-term growth while ensuring stability and security for their beneficiaries. Against the backdrop of global economic volatility, geo-political tensions, over-priced assets, impact of disruptive technologies and an aging population, pensions funds are thinking and exploring their role as investors and adopters of Artificial Intelligence (AI) technologies.
Understanding the Scope of Investments made by Pension Funds
“Canadian pension funds have been getting a lot of attention recently,” Mahmood remarked, referencing the large capital they manage and the potential economic impact of mobilizing that capital in a jurisdiction. The largest pension funds in Canada (often referred to as Maple 8/10) have over $2 trillion of assets under management (AUM). While these funds are often seen as homogeneous, Mahmood notes that they differ greatly in size, mandate, and strategy, particularly when it comes to innovative investments like AI.
Pension funds, by their very nature, are designed to provide long-term financial security to their beneficiaries. However, their investment strategies can differ significantly depending on the stage of the fund. For funds that are still in the accumulation phase—where contributions from active workers outweigh the benefit payments to retirees—there might be a greater focus on growth and long-term opportunities. On the other hand, more mature funds, where the balance tips towards retirees drawing from the fund, often prioritize stability and risk management.
As the baby boomer generation retires, many pension funds may face significant drawdowns over the next few years, as their membership transitions more to retirees than active contributors.
Alison reiterated, that “When you’re a pension fund, you want very clear expectations in terms of the benchmarks and, with that, the funds can’t take too much risk. But that is the opposite of how you tackle an emerging area like AI. It takes intentionality by fund leadership to say even though we've got to put all this money to work and pay the pensions, we also have to stay on top of emerging trends.”
Meghna stressed the importance of understanding opportunities that exist due to the impact on the broader ecosystem and not just from investing in AI applications. She noted that AIMCo’s focus has been on the impact new technologies can have on solving problems. “[We look at] the apps that are going to get developed, the businesses that are going to be impacted, and also the energy that data centres that are going to need to power all of this.” She highlighted AIMCo’ strategy of integrating AI solutions into their portfolio companies through initiatives like the Creative Destruction Lab’s “Putting AI to Work” program, demonstrating how pension funds can create value beyond just financial returns.
Lessons Learned and the Future of AI Investment
The panelists shared valuable lessons learned from their early investments in AI.
Alison noted the significant time and effort required to align internal teams, many of whom are used to traditional asset classes, with the demands of new, technology-driven investments. Meghna reflected on AIMCo’s first AI joint venture in 2019, which taught them the critical importance of data quality and aligning AI initiatives with their broader corporate and investment strategies.
Eduard pointed to PSP’s investment in Cohere, an AI firm introduced by their partner Radical Ventures, as a key learning experience. He stressed the importance of knowledge transfer from AI companies to pension fund teams, enabling them to better understand AI’s impact on business models.
These senior investment managers acknowledged Canada’s tremendous potential in harnessing AI. According to Alison, there is potential for Canada to become a leader in clean energy and compute power, noting that this could provide a competitive advantage in the AI space. At the same time, she emphasized the need to proceed with some caution given the rapid evolution of these technologies and their uses which may have unintended consequences or “reputational risk”.
Echoing similar sentiments, Meghna noted that a lot of policy focus has centred around the supply side [i.e. around infrastructure and start-up development], and it was time to also focus on the demand side of AI, urging policymakers to promote the responsible adoption of AI by businesses. Considering that scaling AI is crucial for enhancing Canada’s AI advantage, Eduard advocated for collaboration between government and pension funds to minimize development risks while maximizing economic impact. He also emphasized that while such investments offer extraordinary opportunity to learn and provide knowledge transfer, pension funds still are looking for cash-flow generating companies.
As Canadian pension funds continue to navigate the evolving landscape of AI, Mahmood concluded the discussion by observing that they do so with a clear focus on stability and risk management. “The mission of a pension fund is first and foremost retirement security.”
Retirement security and stability remain an overarching factor in the funds’ investment decisions but emerging technologies like AI, also offer tremendous opportunities which is why they are on the radar of pension funds.
Renée Hueston MBA’24, is a Research and Communications Analyst at the Lawrence National Centre.