From Mark Machin, President & CEO, CPP Investments
As the head of CPP Investments, the organization that invests the Canada Pension Plan Fund in the best interests of millions of Canadians, I spend a lot of my time thinking about long-term risks that could affect the safety of our investments, risk in relation to opportunity, and the potential risks we can’t foresee that spring up suddenly.
The COVID-19 pandemic currently roiling markets worldwide falls squarely in that last category. While the possibility for widespread contagion is ever present, a few short months ago it was still a theoretical risk. No longer.
This coronavirus presents a serious challenge to communities and people everywhere and is forcing profound changes in our daily lives.
At CPP Investments, we’re taking all precautions to prevent community spread and are encouraging others to do the same. We’ve stopped all non-essential travel, enabled our employees to work from home, and are doing our part to maintain essential services to Canadians.
For us, that means continuing to help protect the Canada Pension Plan, which is the base layer of retirement savings for most Canadians. Canadians are focused, as they should be, on keeping their families healthy. We remain focused on safeguarding the financial health of the CPP Fund. I can assure you that, even in the aftermath of the stock market declines in recent days, the sustainability of your CPP Fund remains secure.
In the coming months, many businesses, will experience levels of stress they have not seen in years – or in fact, may have never seen. We take a long-term view. We have weathered crises before, and we know that heightened stress makes it ever more important to keep our focus on the long term.
Our job is to deliver strong financial performance for multiple generations. That’s why we evaluate every investment we make on its ability to generate returns for decades, not on the likelihood of an up or down price movement in the next quarter.
Of course, we will continue to stress test our portfolio, looking at investment outcomes under a variety of extreme scenarios so we can be confident that, whatever happens over the coming weeks and months, the necessary funds will always be available for CPP benefits payments.
With this long-term view, we pursue an active, long-term investing strategy. Starting most crucially with diversification, both in where and how we invest. We invest across sectors, strategies and markets that span the globe. This diversification ensures our access to the best opportunities, reduces risk from overexposure to any one market or asset class, and lets us buy and hold when others can be distracted by short-term volatility.
Another critical strength is our size, soundness and governance structure, which allows us to navigate market volatility unlike many other investors. We’ve weathered through trouble before, not allowing short-term drops to distract us from focusing on long-term gains. During the Global Financial Crisis, the CPP Fund lost 18.8% in value in one year, but just six years later the CPP Fund’s investments gained 18.3% in one year alone. What matters is our performance over a much longer horizon. Our 10-year performance, reported in December, was well over 10%.
Sustainability of the CPP
Projections of the CPP Fund, being the combined assets of the base and additional CPP accounts, are based on the nominal projections from the 30th Actuarial Report on the Canada Pension Plan as at December 31, 2018
1 Represents actual total Fund assets as at December 31, 2019
Over the past 21 years, we’ve grown the CPP Fund from $36.9 billion to $420.4 billion; and the most recent report by the Chief Actuary of Canada, released in December 2019, states the Fund continues to be sustainable for more than 75 years. This performance was made possible by the diverse skills, deep expertise, and network of relationships we’ve built over the years.
We don’t yet know the full impact of COVID-19. It will continue to affect the global economy and like other global investors, we will not be immune. We believe strongly, however, that our long-term investing view, our deep bench of talent and expertise, and our highly-diversified portfolio will continue to serve the Canadians who depend on us for the safety of their retirements. To all 20 million Canadians who participate in the CPP – it is with kindness to one another and confidence in the systems in place, like the CPP, that we will endure.
Mark Machin is President and CEO of CPP Investments, which manages more than $420B in public and private equities, private debt, and infrastructure in more than 50 countries. He was recently named chair of the board of directors of FCLTGlobal, a non-profit organization that develops research and tools to encourage long-term investing.