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F2021 Annual Report

3generations Women Edited

Fiscal 2021 Annual Report

Our widely diversified portfolio and active investment approach have built a resilient Fund for today’s retirees and for decades to come.

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CPP Investments continues to deliver strong Fund returns, helping to maintain the sustainability of the Canada Pension Plan for generations.

We invite our stakeholders to read our 2021 Annual Report for more information on our performance.

Download the 2021 Annual Report

2021 Fiscal Highlights

$497.2
Billion

Fund at March 31, 2021

20.4%

Fiscal 2021 rate of return (net nominal)

$83.9
Billion

Fiscal 2021 net income after all CPP Investments costs

President’s Message

Since inception, we have operated with a defining purpose: to help protect the sustainability of the CPP, the base layer of retirement savings for most Canadians, through our investments. This sense of purpose is why our organization has not paused during this exceptionally challenging period.

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 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, 2021

President's Message

Read what our President & CEO John Graham has to say about fiscal 2021

Learn more

President’s Message

President’s Message

Since inception, we have operated with a defining purpose: to help protect the sustainability of the CPP, the base layer of retirement savings for most Canadians, through our investments. This sense of purpose is why our organization has not paused during this exceptionally challenging period.

John Graham
President & CEO

I’m honoured to share my first annual update with you.

It is impossible to discuss the last 12 months without first recognizing the pervasive impact of COVID-19. The pandemic tested the physical and mental health, spirits and financial security of Canadians in ways we couldn’t previously imagine. It also tested the ability of human ingenuity and innovation to solve the world’s most pressing issues. We have come far together over this time.

Against the backdrop of these extreme conditions, I’m pleased to report that the Fund and our organization stood resilient, delivering our strongest-ever net return of 20.4%, after all costs. Canada Pension Plan (CPP) benefits continued to be paid and the long-term sustainability of the CPP was protected and reinforced. We continued to take a long-horizon perspective on markets, build globally diversified portfolios and rely on our governance and risk management structures to weather the pandemic.

Since inception, we have operated with a defining purpose: to help protect the sustainability of the CPP, the base layer of retirement savings for most Canadians, through our investments. I witnessed that sense of mission and energy first-hand this year on computer screens from Toronto to Sydney to Mumbai. This sense of purpose is why our organization has not paused during this exceptionally challenging period.

This purpose is also what drew me here from a career in science more than a decade ago. And shortly before our fiscal year end, after a variety of roles at CPP Investments, I became President & CEO. Our organization has always sought to develop a deep pool of talent and I was honoured to step into the role.

My commitment to you is that our diligence in helping to protect the Fund will not waver. The values, culture and Investment Beliefs that have propelled us this far will be everlasting.

Most importantly, I’d like you to know the Fund is moving from strength to strength, by using an even sharper lens to monitor our long-term strategy as we move deeper into its execution and closer to becoming a trillion-dollar Fund. We are entering this new fiscal year with the mindset and the ability to be the best investor of our type in the world.

Our performance

The challenges of the last year tested the Fund like never before. This experience strengthened our belief that working together across our distinct investment departments and across markets to act as one Fund will continue to allow us to surface compelling opportunities to grow and safeguard the Fund.

The Fund performed well in fiscal 2021 and these results indicate that our strategy is on track. We saw the Fund grow to $497.2 billion, based on $83.9 billion in net income and $3.7 billion in net contributions received. The half-trillion-dollar mark is a significant milestone for the Fund and underscores the strength of our active management strategy. When CPP Investments was first created in 1999, it was estimated that we would not reach this point until 2028. Now, here we are, about seven years and $175 billion ahead of schedule, with a global footprint and diversified investment programs that could scarcely have been imagined back then.

To hold our strategy of active investment management accountable, we report a dollar value-added (DVA) comparison of our investment returns, after all costs, to our aggregated Reference Portfolio, which represents a passive portfolio of public-market stocks and bonds that the Fund might otherwise hold had CPP Investments not pursued active management.

The Reference Portfolio for the base CPP is made up of 85% global equities and the Reference Portfolio for the additional CPP is made up of 50% global equities. These Reference Portfolios outperformed this year after global equity markets soared amid fiscal stimulus flooding the market in response to COVID-19. Our Investment Portfolios’ growth was less dramatic, but well above the range required to maintain the Fund’s sustainability over the long term. Both the Reference Portfolios and the Fund ultimately behaved as we would expect them to this year, as they did at the end of our last fiscal year when our private market investments cushioned against a dramatically different falling market backdrop. Our DVA compared with our aggregated Reference Portfolio this fiscal year was negative $35.3 billion, or negative 10.0%, and our Reference Portfolios returns for the base CPP and additional CPP were 30.5% and 17.0%, respectively.

This year’s return should be viewed in the context of our generational investment horizon. Short-term pressures can have a striking influence on yearly results but may be barely visible when viewed over the course of a generation. In fiscal 2015, for example, we achieved an annual net return of 18.2%, which was then our highest ever (until this year’s results). Yet, just six years earlier, in fiscal 2009, we suffered our largest loss of 18.6% as the world entered the global financial crisis. This stark contrast of yearly results is an expected part of the process for long-term, diversified investors. As I have assured my friends and neighbours, we are built to withstand these annual fluctuations. We continue to far exceed returns projected to be needed to sustain the CPP over the long term. Our five-year and 10-year net returns of 11.0% and 10.8%, respectively, begin to demonstrate the wisdom of this strategic approach.

Why we remain a diversified, global investor

COVID-19 led to rapid acceleration in select sectors, bringing many of our long-term investment theses to fruition earlier than expected, to the benefit of  the Fund. Telemedicine, virtual education and logistics fulfilment centres, for example, all experienced increased adoption, even as we entered global recessionary territory.

While risks abound in the world today, our strategy of diversifying across currencies, countries and asset classes enables us to manage those risks. We seek to ensure that the Fund is appropriately rewarded for risks we take, including geopolitical, climate change and reputation-related considerations, which is a unique approach that helps set us apart when analyzing investments and executing our strategy. For example, we rely on our regional expertise to deeply understand the risk characteristics of an intensifying capital and technology race between the Eastern and Western Hemispheres – an ability few investors can claim.

The halfway milestone of our 2025 strategy

Four years ago, it was my privilege to help develop our enterprise-wide strategy. Now as President & CEO, I remain committed to its continued implementation.

Our priorities remain, including:

  • Building our data and analytics capabilities;
  • Continuing to grow and diversify as a global investor into emerging markets; and
  • Further developing our talent and culture

To deliver on these priorities, in fiscal 2021 we established a Chief Investment Officer role, appointing Edwin Cass, to address the growing size, scale and complexity of our Fund. We also welcomed Frank Ieraci, Senior Managing Director & Global Head of Active Equities to our senior leadership team. Frank and Ed are both champions of using data-driven research and advanced analytics to improve long-term performance. In addition, Deborah Orida took on a new role as Senior Managing Director & Global Head of Real Assets, bringing her depth of investment experience to an additional part of the Fund. And at the beginning of fiscal 2022, Andrew Edgell became Senior Managing Director & Global Head of Credit Investments, adding his technical expertise to the senior team.

Three notable achievements this year:

First, we believe that the most rewarding investment opportunities in the global economy over the coming decades will be found among businesses that truly understand the risks, opportunities and impacts of climate change. Our investment strategy ensures we identify such businesses. Our Climate Change Program is more deeply embedded into our investment processes and operations, including tools for assessing the economic damage associated with different Energy Transition and Climate Change (ETCC) paths as we select securities and design our portfolio. By acting as a long-term and engaged capital partner, we expect to see continued reduction of the Fund’s exposure to greenhouse gas emissions over time.

Second, we continued to enhance our approach to risk management. This year, we built on our Integrated Risk Framework with a new and extended policy that provides the safeguards needed to manage a crisis while protecting the financial stability and operations of the Fund. Our approach worked as intended during the pandemic by prioritizing employee health and safety, the ability to meet our obligations to the CPP and other counterparties, and adherence to Board-approved investment and non-investment risk tolerances. We were able to act decisively this year because we had risk management mechanisms in place before COVID-19, including a structure to quickly gather and assess information in a crisis.

Third, we started to realize an increase in innovation across the Fund through a focused effort to harness the power of our San Francisco office’s proximity to cutting-edge technology. We now regularly expose our global colleagues to the expertise and relationships we’ve built in the Valley. For example, we hosted a private discussion for select portfolio-company Chief Financial Officers and organized an investment pitch event focused on solving complex societal problems. We have reimagined how collaboration can happen by acting as a convener between our investment professionals, external investment managers and Bay Area thought leaders and entrepreneurs.

Having now spent over a decade at CPP Investments, I’m convinced our organization has unparalleled potential. We operate at a rare nexus in the financial world and possess knowledge and perspective that is only attainable by managing a multi-asset class, global and diverse portfolio. This powerful combination makes us the sought-after capital partner we are today.

We plan to use this standing to bring increased rigour to how we integrate various elements of our portfolio and use new tools. Three elements of particular interest include: building our talent strategy to attract the highest performing individuals from a multitude of disciplines who want to work for a purpose-driven organization; identifying and removing unconscious biases from investment decisions by bringing to bear all the talents and wisdom of a diverse workplace; and continuing to seek rewarding investment opportunities among businesses that understand the risks, opportunities and impacts of climate change.

In gratitude

There are many lessons to be drawn from this difficult year. One of the most important for me is the importance of culture, by which I mean the beliefs, practices and actions of the people who make up an organization. My colleagues displayed extraordinary character and courage this past year, surmounting difficult personal and professional challenges, looking out for one another with empathy, and never losing sight of the importance of their work for you. Their resilience gives me confidence that we will continue to excel, whatever the future might bring. They, along with their families who supported the many evenings and weekends of relentless work to secure the Fund this past year, have my heartfelt gratitude. I thank them on behalf of all Canadians.

I was extremely fortunate to take the helm of an organization that has more than proven its mettle, and for that, I also thank my predecessor, Mark Machin. Our Board of Directors has demonstrated unwavering support of the organization over the past year. I am grateful for that, and for the support the Board has shown me personally as I transition into my new role.

Most of all, I would like to thank our CPP contributors and beneficiaries, the working people of Canada, for the confidence they have placed in us. I can promise that we will continue to work hard every day to earn that trust and manage the Fund in the best interests of you and generations to come.

Sincerely,

John Graham
President & CEO

Annual Report Overview

2021 Highlights

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Chairperson’s Report

Read what Dr. Heather Munroe-Blum has to say about fiscal 2021.

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Chairperson’s Report

Chairperson's Report

Today, we are certain of two things: first, we owe a great deal to those who have risked their own safety to help us manage through this crisis; and second, the pandemic will continue to shape our lives far into the future.

Dr. Heather Munroe-Blum, Chairperson

Dear fellow Canada Pension Plan contributors and beneficiaries

Our fiscal 2020 annual report was published soon after the onset of the COVID-19 pandemic. At that time, I wrote that its full effects were yet to be seen.

A year on, the impact is clear: people everywhere have experienced hardship, economies were disrupted and businesses were forced to adapt swiftly to unprecedented challenges. Today, we are certain of two things: first, we owe a great deal to those who have risked their own safety to help us manage through this crisis; and second, the pandemic will continue to shape our lives far into the future.

I commend our employees for their extraordinary efforts during this difficult year. We went from having nine offices to more than 1,900 offices virtually overnight. Our colleagues have had to balance family responsibilities and safety concerns with their work to manage the Fund. This has required agility, resilience and adaptation to radically different work and personal environments. Our people have risen to the challenge.

Oversight of the organization’s operations and risk management became ever more important this past year. Throughout the crisis, our Board of Directors engaged regularly with Management, meeting more often, and receiving enhanced briefings and reports on the health of our people and our investment portfolio.

Two factors are critical to our performance as a global investment manager and consistent with our mission: a world-class governance model and public accountability. The organization’s independence from political interference since its inception has been key in safeguarding the Fund and instilling public trust.

In that context, I am pleased to report that the organization’s strategy remains on track with a 10-year net return of 10.8%.

Stewardship of the long-term investment strategy


Succession planning

Succession planning is an ongoing activity, not an event. Key members of the Senior Management Team (SMT) are identified and prepared for potential appointment as chief executive. This ongoing process enabled the Board of Directors’ clarity and conviction in appointing a new President & CEO, John Graham, when Mark Machin stepped down at the end of February.

Since joining CPP Investments in 2008, John has established a successful track record as an innovator and builder of leading global investment businesses. A highly regarded member of the SMT, John has been instrumental in helping shape and execute our organization’s strategy. John’s commitment to the organization, to his colleagues and to CPP Investments’ unique mandate is unequalled. The Board of Directors unanimously agreed that he is ideally suited to lead the organization forward.

I thank Mark Machin for his leadership and very significant contributions to the growth and success of CPP Investments during his tenure as CEO. My fellow Directors and I wish Mark the best in his future endeavours.

Risk management

The Board of Directors has remained focused on risk management and approved a new Integrated Risk Policy effective for fiscal 2022. It is a timely, world-class standard in risk systems and governance.

Undoubtedly one of the greatest challenges to business is climate change. This past fiscal year, the Board of Directors approved an addition to our Proxy Voting Principles and Guidelines to address the impacts of climate change. For those companies that have palpably failed to address climate risks and have thereby impaired the value of the company, we will vote against the reappointment of their directors involved in risk oversight.

Engagement with business activities

In fiscal 2021, an ad hoc Board committee was established to review the mandate and function of the Investment Committee of the Board to further its focus on investment strategy and performance. Updated Terms of Reference were approved for the renamed Investment Strategy Committee effective for fiscal 2022.

Board oversight activities also include the annual review of the operating budget. In fiscal 2021, the operating expense ratio of 31.4 basis points was flat compared to the five-year average of 31.5.

CPP Investments held public meetings across Canada in 2020, allowing CPP contributors and beneficiaries to hear directly from, and ask questions of, the organization – this time, virtually. I provided an introductory message at each meeting and was very pleased to see the level of engagement by Canadians.

The Board of Directors holds a meeting in one of the organization’s key markets around the globe on a regular basis. For fiscal 2021, the focus was on Asia Pacific and due to safety considerations and travel restrictions, the meeting was conducted virtually, during which the Board met with peers, partners and employees in the region.

Board of Directors renewal

Over the years, the Board of Directors has recruited new directors in a process consistent with our commitment to achieving global best-in-class standards of corporate governance, independence and diversity, commensurate with our public purpose. Consequently, our Board of Directors today is even more diverse vis-à-vis age, gender, leadership and global business experience.

The distinguished U.S. National Association of Corporate Directors awarded our efforts by choosing CPP Investments, the first Canadian company
to be so recognized, as one of three recipients of its 2020 NACD NXT Award, which “applauds boards for their excellence in utilizing board diversity and innovation as a strategy for building long-term value.”

This past July, we welcomed Boon Sim to the Board of Directors, replacing retired Director Jackson Tai. Mr. Sim brings with him an impressive array of global experience in finance, technology and health care.

Ashleigh Everett, John Montalbano, Mary Phibbs and I have all been reappointed to the Board of Directors.

In closing

It is difficult to find words that fully express my thanks and pride in the work done by our employees, Senior Management and my fellow Directors this past year. Throughout this crisis, they never faltered in their efforts on behalf of the 20 million CPP contributors and beneficiaries, demonstrating their deep commitment to this organization and its public purpose.

Heather Munroe-Blum OC, OQ, PhD, FRSC
Chairperson

President’s Message

Read what our President & CEO John Graham has to say about fiscal 2021

Learn more

Fund Sustainability

Learn more about the long-term sustainability of the Fund.

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Fund Sustainability

CPP Investments has a critical mission: to help ensure Canadians have a strong foundation of financial security in retirement.

Our defining purpose is to manage Canada Pension Plan (CPP) funds in the best interests of contributors and beneficiaries. Our experienced professionals invest globally to maximize returns without undue risk of loss, with consideration of the factors that may affect funding of the CPP. We take a disciplined, long-term approach to managing the Fund.

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We are on track to help maintain the sustainability of the Canada Pension Plan.

The CPP is designed to provide a stable source of retirement income to Canadians today and across multiple generations. Returns earned on our investments support its endurance.

The Office of the Chief Actuary monitors the long-term sustainability of each part of the Plan. Every three years, the Chief Actuary reports on the financial state of the base CPP and additional CPP over the next 75 years.

The most recent report, released in December 2019, reconfirmed that both parts of the CPP are sustainable at the legislated contribution rates as of December 31, 2018.

The chart below illustrates the combined projections of assets from the Chief Actuary’s 30th Report, which considers future changes in demographics, the economy and investment environments. The Fund has two sources of growth: net contributions from CPP participants and net income earned from investments.

By 2050, the total Fund is projected to reach $3 trillion ($1.6 trillion when value is adjusted for expected inflation).

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 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, 2021

Building long-term value

When we first began to operate in 1999, the Fund was not expected to reach the half-trillion-dollar mark for another seven years – in 2028. As we enter our 22nd year managing the Fund, CPP Investments is now about $175 billion ahead of those projections.

Fund Sustainability Highlights

75+ Years

of CPP sustainability

20+ Million

Contributors and beneficiaries

$303.9 Billion

10-year net income

10.8%

10-year return (net nominal)

Asset Mix

As at March 31, 2021

1 Net of external debt issuances

Global Diversification by Region

As at March 31, 2021

Chairperson’s Report

Read what Dr. Heather Munroe-Blum has to say about fiscal 2021.

Learn more

Global Investment Highlights

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Global Investment Highlights

We search globally for the best possible investment opportunities.

Our Fund is designed to capture global growth while also demonstrating resilience during periods of market uncertainty. Our team of professionals collaborate across nine global offices to apply their deep expertise and local knowledge to source investment opportunities, engage with world-class partners and build value in our existing assets.

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Intact Financial

Canada
C$1.2 billion

Cornerstone financing to support Intact Financial Corporation in its acquisition of RSA’s Canada and U.K. & International operations

Wolf Carbon Solutions

Canada
C$315 million

Supported the construction of the Alberta Carbon Trunk Line, a 240-kilometre CO2 transportation pipeline in Alberta

insitro

United States
US$150 million

Investment in insitro, a machine-learning driven drug discovery and development company

Transurban Chesapeake

United States
US$624 million

15% interest in Transurban Chesapeake, a toll-road business comprising the 495, 95 and 395 Express Lanes located in the Greater Washington Area

TOTVS

Brazil
C$103 million

2.7% stake in TOTVS, a leading provider of business software solutions

Embracer

Sweden
€499 million

5.4% ownership in Sweden-listed Embracer Group, Europe’s largest developer and publisher in the global video game industry

Galileo Global Education

France
€550 million equity investment

Completed the acquisition of a significant minority stake in Galileo Global Education, a leading international provider of higher education and Europe’s largest higher education group

Kuaishou Technology

China
US$150 million

Cornerstone investor in the IPO of Kuaishou Technology, a mobile short video sharing and live streaming platform in China

GLP Japan Income Fund

Japan
C$412 million

Complemented our successful development partnership with GLP through the launch of the largest private openended logistics fund in Japan

Virtusa

India
US$300 million

24.99% stake in Virtusa Corporation, a global provider of a full spectrum of IT services

Green Bond

Australia
A$150 million

Issued our first Australian-dollar green bond, adding a fourth currency to our green bond issuance

Fund Sustainability

Learn more about the long-term sustainability of the Fund.

Learn more
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