An exceptionally long investment horizon shapes how we view opportunities and risk. By investing for the next quarter century, not the next quarter, we can make investments that others can’t.
Building for the future means taking a forward-looking, patient and disciplined approach – one that goes well beyond regular economic cycles and shorter term trends.
As a result of adopting a long-horizon view, we’re able to consider investments that deliver value over a more extended time frame than those considered by most other investors. We’re not compelled to take the short-term actions forced on many other market participants by their business imperatives or legislated funding requirements. We can, for example, more readily provide capital for long-term projects, including investments in vital infrastructure renewal around the world and the development of new energy capabilities.
Our long horizon also means that, while we report our results quarterly, the true picture of our performance emerges over a much longer period of time.
In essence, our long horizon means we can benefit from short-term market dynamics – but we are not driven by them. We can exercise the patience required for the true long-term investor to reap the associated rewards.
The Canada Pension Plan Fund is ranked as one of the 10 largest retirement funds in the world. Our scale allows us to undertake large transactions for which few others can compete.
CPP Investments’ assets are projected to reach approximately $545 billion by 2025.
This scale means we can invest substantially in private markets, many of which are larger than their public market counterparts and are expected to offer greater returns over time. It also gives us the capacity to build the sophisticated tools, systems and analytics that are required to support an investment platform of our magnitude.
Our scale has allowed us to participate in some of the largest transactions in the world. Along with our global perspective and our international presence, our scale means we can seek the best possible investment opportunities wherever they may be.
Sustainability of the CPP
The most recent triennial report by the Chief Actuary of Canada indicated that the CPP is sustainable over a 75-year projection period. 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 March 31, 2022.
The CPP will collect excess contributions until the end of 2020, providing incoming cash for new investments and allowing us to build and adjust our portfolio with discipline.
Projections by the Chief Actuary of Canada indicate that CPP contributions will exceed annual benefits paid until the end of 2020. This excess of contributions over benefits means a reliable and steady stream of capital over the coming years.
This certainty of assets affords us the ability to be flexible, patient investors who can capitalize on opportunities in volatile markets when others face liquidity pressures. It also means we can build and adjust our portfolio with discipline, in accordance with our investment strategy.
As a global investment organization, we have built a world-class investment team that is committed to our Guiding Principles of integrity, partnership, and high performance.
As a global investment organization, we have built a world-class investment team with expertise that is both broad and deep. High-calibre professionals from around the world are attracted not only by our size and growth, but also by our culture.
This culture is anchored in our critical purpose of providing a foundation for Canadians’ retirement security. And it is embodied in our Guiding Principles of Integrity, Partnership, and High Performance, principles that define who we are, what we believe, and how we work.
We meet or exceed the highest standards of integrity expected of us by the contributors and beneficiaries of the CPP. We operate with transparency. We honour our commitments. We do what we say.
We are highly collaborative and believe that success comes when people partner together closely. We have a distinctly respectful environment that we carry forward in our relationships with all of our stakeholders.
And we’re dedicated to high performance. Our investment professionals are empowered to make informed, intelligent decisions. We work hard to ensure that we leverage the diverse points of view of our global workforce.
Strong partnerships are central to our investment strategy and critical to our success. It’s our focus wherever in the world we’re doing business.
Our ability to successfully partner with leading organizations is central to how we invest, create value and conduct our business.
It’s through our strategic partners that we’re able to access key opportunities. It’s through top-performing investment managers and specialized investment expertise that we’re able to gain access to markets around the world. And because we believe that our relationships are founded on trust, respect and mutual benefit, we routinely enjoy longstanding, established relationships that transcend typical client-supplier dynamics.
We take a structured, formal approach to establishing and maintaining relationships with our partners. This approach stipulates that we always:
- ensure we are aligned with how the partner will deliver value;
- focus on the broader, long-term relationship; and
- select partners with whom we are willing to experiment in developing new opportunities.
We also look to our partners for feedback, valuing their guidance in helping us refine our own capabilities and ensuring we continue to work effectively together into the future.
Our distinctive investment strategy – which focuses on the risk/return characteristics of investments rather than on traditional asset labels – helps us make decisions in the context of the characteristics and performance of the total fund.
CPP Investments’ Total Portfolio Approach (TPA) is a principal element of our overall investment strategy. It is designed to ensure that planned risk exposures at the total portfolio level are maintained as individual investments enter, leave or change in value.
As we seek to add value through active investing by extending beyond the Reference Portfolio (representing a set of economic exposures and systematic risks which we treat as a starting point), we use this approach to safeguard against unintended risks.
The approach essentially diversifies the portfolio at the level of risk and return streams, rather than at the level of specific asset classes such as real estate or infrastructure. By adopting this approach – essentially taking a total portfolio view – we’re able to avoid the pressure to buy or dispose of illiquid investments at non-preferable times just in order to stay close to allocation targets. Instead, we look through asset class labels to assess risk – and make decisions accordingly.
The approach requires continuous assessment to ensure we minimize unintended risk exposures. Working closely with each of our investment departments, the Total Portfolio Management team provides guidance, structures goals and targets, clarifies economic value, and helps identify opportunities that fit well within the entire portfolio composition.
Ultimately, TPA is a means of challenging assumptions, minimizing unintended exposures, accommodating diverse investment programs and building line of sight into the true substance of our portfolio.
We believe that by recognizing that the portfolio is a collection of interrelated parts and strategies that together make the whole, our Total Portfolio Approach enables us to build a portfolio that is consistently superior to those that focus on more traditional, rigid asset allocations.