On Thursday April 20, 2023, CPP Investments President & CEO John Graham addressed the C.D. Howe Institute*. What follows is a transcript of those remarks.
Check against delivery.
Thank you for that kind introduction and for inviting me to speak today.
I’m especially pleased to be here because the C.D. Howe’s purpose is to foster sound public policy and the Canada Pension Plan Investment Board is one of our country’s most significant public policy success stories.
I’m here today to remind the Canadian business community of this success and to share some challenges that we are navigating.
Not all of these challenges are because of the volatility in global markets, or because of demographic shifts.
Some of the challenges are coming from potential politicization and regionalism.
Now, as business leaders we certainly accept that we operate within the landscape that public policy creates.
But when that landscape starts to shift and to impact our businesses, we become responsible for using our voice to share information with key stakeholders.
This is especially true, when your voice represents 21 million Canadians – as does ours.
For two decades Canada’s national pension plan has performed very well safely from the sidelines, away from the political arena.
Over the past two decades, we’ve been focused on investing and competing to become one of the world’s highest performing institutional investors.
Make no mistake, we respect policy innovation, and the right of all member provinces and their stewards to act on behalf of their contributors.
But we cannot take a passive role when it comes to informing all stakeholders about what we do and advocating on behalf of future generations.
The Canada Pension Plan enjoys a level of stability that’s the envy of countries worldwide.
But as many of you here will remember, that was not always the case.
In the 1990s Ottawa and the provinces came together determined that older Canadians needed a more financially secure retirement than what the Canada Pension Plan was on track to provide.
Using bold reforms, the Canada Pension Plan Investment Board was created in 1997.
The reforms required an almost unparalleled degree of federal-provincial cooperation. To give a sense of this feat, the CPPIB Act is harder to change than the Canadian Constitution.
Policy makers agreed that a professional and highly-qualified organization with a clear, singular goal would be the safest way to ensure the sustainability of the CPP.
That singular goal is to achieve a rate of return high enough to help sustain pension payments for millions of people today and tomorrow.
In the 26 years since then, the organization has been a success and delivered on its mandate.
We have a 10-year return of 10%, cumulative dollar value added of over C$40B since inception and today we are not just a player in the arena of institutional investing, but a global leader.
We strive to have more Canadians understand the unique history and value of the Canada Pension Plan. To stand up and be the voice of this national treasure.
We live in a time when the pension systems of many other Western countries are not functioning.
In France, we’ve witnessed massive nation-wide protests as the government tries to save its pension system by moving the retirement age from 62 to 64.
And in the U.S., social security is estimated to run dry by 2034 without substantial reform.
It is good news of course that we are all living longer. The bad news though is that some of today’s social structures were not designed to accommodate the 100-year life.
Older people are more likely to lean on government health plans and pensions which, in most countries, can barely pay for today’s pensioners, let alone tomorrow’s.
The phenomenon of aging societies could very well lead to a crisis of financial security for millions around the world. The fact that it’s slow-moving doesn’t mean that when it peaks, it won’t be destructive.
This may lead you to ask: why haven’t Canadians heard more about this impending crisis?
That’s because, as I mentioned, over a quarter a century ago, Canada decided to do something about one of the biggest risks that people face: outliving their financial assets.
Fortunately, the foundation of our retirement system in Canada is solid.
The pillar that was once the weakest, the CPP, has potentially become the strongest.
In this role, as CEO, I have had the opportunity to travel all over the world and I have been asked by countless global business leaders and governments: “Why is the Canadian national pension model so special?”
The biggest step in Canada avoiding the impending global retirement crisis, of course, was the decision to have a national pension plan in the first place.
But also, the foresight to establish an independent, investment manager, CPPIB or CPP Investments.
The Economist magazine once called CPP Investments “an investment force to be reckoned with” because of its structure and operational excellence.
But let me share a bit about what attributes I think sets CPP Investments apart and are foundational to our long-term success.
First, we operate at arms-length from federal and provincial governments.
Imagine navigating 50 cycles of governments across ten jurisdictions through various political, social, and economic cycles. The only way through that scenario, is with a platinum grade governance framework, like ours.
Every three years, the Chief Actuary of Canada conducts a financial review of the CPP. A few months ago, the latest review concluded that the existing benefit levels are sustainable for 75 years.
This, despite Canada’s aging population, longer life expectancies, and a decreasing dependency ratio.
Second attribute, we have a clear mandate.
That is, to maximize returns without undue risk of loss, while considering the factors that may affect the funding of the CPP.
We have one goal, we are focused on investing and the clarity of mandate helps us do it well.
We invest on behalf of all contributors and beneficiaries across the country. We are agnostic about where our contributors live. Their hometowns can be near the Rockies or the Maritimes; location is not a barrier.
You can move from one part of the country to the other and know your Canada Pension is portable and secure.
Third, we’re global. We are invested in most major markets around the world. It can be logistics in Korea, health care in San Francisco, or oil and gas in Calgary.
We do transactions that require international reach and deep experience. And while we invest across asset classes, we don’t do it in silos.
We are one fund; we operate as One Fund, and we invest as One Fund – capable of investing throughout the entire lifecycle of a company.
Whether it’s seeding platforms, completing billion-dollar private transactions that involve our credit and private equity teams or preparing a company for public offering, we have a proven track-record of doing it all.
Finally, the Fund is shaped by long-term thinking.
In a world where investment philosophies can veer from one quarter to the next, our highly qualified investors are trained to look decades ahead and be patient.
There is certainly some circularity in these attributes. Our governance structure allows us to take a long-term time horizon. We have an investment belief that long-term investing can provide opportunity for greater rewards.
We never need to be always buying or holding or selling. We can be patient and let opportunities come to us.
We have built an enterprise-wide risk culture that values the importance of effective risk management in all our day-to-day activities.
Sometimes the most important decisions an investor makes is what not to invest in.
Back in 2014 we chose not to invest in Russia because it was outside of our risk appetite. More recently, we did not get swept up in the hype around technology and did not directly invest in crypto.
So, what’s next for us?
Active investing is hard and will only get harder. For the past decade, simply riding the rising equity markets was a winning strategy.
The next few years will be characterized by a challenging global growth environment, increasing volatility in capital markets, and a complex and evolving geopolitical landscape.
What will distinguish CPP Investments is not just our structure, but our execution.
While our political independence, risk-pooling, portability, and scale are hard-to-replicate, our edge in the next 10 years will come from how we do what we do.
The true and lasting difference comes from the experience, the work ethic and the transparency of our investment decision-makers. And from our compulsion to earn public trust and confidence.
Our 2,000+ people work from nine global offices, 46% of our investment professionals are located internationally.
They uncover and secure complex, sizeable opportunities and they do it cost-effectively.
Our portfolio is solid and it’s a testament to focusing on the long-term.
Today, we’re not figuring out how to build a successful organization, we’re running one.
Investment management is one of the most competitive callings in the world. And it demands talent, hard work, and not just a willingness to embrace new ideas, but almost a compulsion to.
Our worldwide investments and financial performance aren’t lucky and they didn’t happen overnight.
They’re the result of thorough diligence, done by many people who think differently and have non-traditional backgrounds.
I am one of them.
I got my Ph.D. in chemistry from Western, then joined Xerox as a research scientist where I worked for nine years until I was recruited as an analyst by CPPIB.
Institutional investors who will win in the future must combine diligence and creativity with foresight – and especially the ability to fight hard against short-term thinking, in a world conditioned to reward immediacy.
As I said, active investing is hard and will only get harder.
We may have some challenging years ahead. But we believe the attributes I discussed will keep CPP Investments at the forefront of global pension fund performance.
Let me conclude: CPP Investments is a tried-and-true global example of how to build, grow and secure a national pension plan.
While it is only natural for a Fund like ours – serving a public purpose on a national scale – to have to navigate the political landscape.
There are two powerful safeguards keeping the Fund and the pensions of Canadians in a safe harbour. First, CPP Investments’ relentless hard work to continue to deliver strong investment performance to meet the pension promise, and second, a coalition of Canadians who truly understand the uniqueness and value of the Canadian Pension Model.
Together, we can preserve this model for all future Canadians.
*The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada’s most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review. You can learn more here.