Mark Machin, President & CEO of Canada Pension Plan Investment Board (CPPIB)
What is CPPIB, and what does it do?
With the average age and lifespan of Canadians rising, planning and preparing well for retirement holds increasing importance to our citizens and our country.
CPPIB is an investment organization that was created to invest the “reserve” fund – contributions into the CPP not immediately needed to pay current benefits.
As background, the CPP was first set up in 1966 by Ottawa and the provinces to address growing poverty among retired Canadians. The CPP was designed around an in-and-out fund model– with contributions from people working today paying retirement benefits to people who had already retired. The money not immediately needed was invested by a government department only into Canadian governments’ debt.
But, in the 1990s, studies of Canada’s population showed that at some point, because of the benefits being paid and the contributions being made and the expected returns on the investments only into Canadian governments’ debt, the money would eventually run out. It was feared there wouldn’t be enough money coming into the CPP Fund to pay benefits to those who had retired.
To fix this problem, Canada’s federal and provincial governments reformed the CPP and created our organization. CPPIB was established to ensure that fund would grow by investing money not immediately needed to pay benefits in the global capital markets, not just in Canadian governments’ debt.
We started to invest globally 20 years ago.
And so far, that solution is working.
The Office of the Chief Actuary of Canada, the independent agency that reviews the financial state of the Fund, concluded in its latest report (issued in September 2016) that the CPP will be able to pay benefits to retirees for at least 75 years.
CPP Investment Board earns those returns in a variety of ways. We invest in public markets (stocks and bonds) as well as private investments that range from toll roads and student housing to clean energy providers and data centres worldwide.
All these investments have one thing in common: they provide growth opportunities that will generate returns and help the CPP to pay pensions to generations of Canadians.
Helping secure a foundation for the retirement of 20 million Canadians is our primary goal.
Can an average Canadian put this investment strategy to work?
As a large institutional investor, we have access to resources and investments that the average Canadian doesn’t; and, that’s ok because, after all, we are investing your money.
The main difference for CPPIB is scale – we have sufficient heft and size that allows us to build a team, systems, and capabilities to invest in ways few others can.
Diversification is our most powerful lever for ensuring the long-term resilience of our portfolio and is our main tool for managing overall risk. We diversify in four ways:
- Asset diversification: We invest across all major asset classes, including public equities, private equities, bonds, private debt, and real assets.
- Risk diversification: We balance and control the exposures to the distinct risks underlying areas of investment and active management.
- Geographic diversification: By investing in over 40 countries, both developed and emerging, we can avoid relying too heavily on any single market (including Canada, with its relatively small capital market and economy). Our global, on-the-ground presence established through our international offices strengthens our ability to achieve broad global diversification.
- Program diversification: Our portfolio is a collection of interrelated parts and strategies – about 25 distinct investment programs – that together form a coherent whole. Approaching investment decisions through a broad range of expertise and views lets the Fund take advantage of opportunities from every investment perspective.
What types of investments do Canadians hold through CPPIB?
Among the things that we have invested in on behalf of CPP contributors and beneficiaries are toll roads in Canada and Australia, the Legoland theme Parks across the globe, retirement and student housing in the U.S. and U.K., and shopping centres, and office blocks in Asia and Europe.
Here in Canada, CPPIB has invested in The Stack office tower in Vancouver’s downtown core, Wolf Midstream Inc., a Calgary-based energy infrastructure company, and the 407 ETR in Ontario, to name a few.
Oxford Properties Group
If you would like to see more of what your CPP money is invested in, please visit cppib.com.
Will the CPP be there for me when I retire?
Yes, the CPP will be there for Canadians when they retire.
As noted above, the Office of the Chief Actuary of Canada assesses the sustainability of the CPP, done every three years.
In September 2016, the Chief Actuary reaffirmed through its latest triennial review that the CPP remains sustainable at the current contribution rate of 9.9% throughout the 75-year period of his report (i.e., until 2090), based on actuarially accepted assumptions.
The Chief Actuary assumes that the base CPP and additional CPP investments will earn an average annual real (meaning after accounting for inflation) rate of return of 3.9% and 3.55%, respectively, over that period after all investment costs and expenses.
As of March 31, 2019, the CPP Fund’s 10-year net nominal annualized return of 11.1% (or 9.2% on a net real return basis) is comfortably above the Chief Actuary’s assumption over this period.
All of us at CPPIB are singularly focused on working to ensure that we can provide a base from which Canadians can retire. We are honoured to be entrusted with this critical task.