Every July 1, Canadians from coast to coast take stock of what we’ve built together and the many bold actions that have shaped Canada into the resilient country it is today. Take 1965, for example. This was a year that united us under one symbol, the national maple leaf flag. That year, we also helped secure our collective financial future through the creation of the Canada Pension Plan (CPP). The CPP was a big, bold idea: Canadians would be safer and more secure in retirement if we worked together and looked after one another. For 30 years, the CPP prospered and helped reduce seniors’ poverty. So, when demographic shifts began to threaten CPP sustainability, Canadians came together again to save the program. In 1997, the federal government and participating provincial governments increased contribution rates and created CPP Investments to focus on the unique investment needs of the CPP Fund to help ensure the CPP would endure for generations. That bold move continues to pay off. More than 25 years since those reforms, the CPP is one of the top performing national pension funds in the world and is financially sustainable for decades to come. That is a remarkable achievement when you think that without the reforms, the CPP was projected to be insolvent by 2015. Instead, it now stands at more than $800 billion. Canadians work hard for the money they put into the CPP every month, and they expect those funds to be managed prudently so that the CPP will be there for them when they need it, for as long as they need it, adjusted for the cost of living through their retirement. As the investment manager of the CPP, we at CPP Investments know our critical responsibility is to help ensure that the promise is kept, and to deliver on Canadians’ expectations. We have a clear mandate that guides our work: maximize returns without undue risk of loss , taking into account the factors that affect the funding of the CPP. The pursuit of higher investment returns must not compromise CPP Fund’s long-term sustainability. Resilient growth is the target , and on that we’ve been delivering, with the CPP Fund growing year-over-year in 26 of the last 27 years we’ve been investing it. That risk-reward balance is what sets managing a national pension fund apart from managing an individual investment portfolio. If an individual makes a bad investment, it affects them and their family. Long-term impairment of the CPP Fund could affect millions of Canadians, their retirement income and potentially the contributions of workers still paying in. The asymmetry of that risk shapes everything we do. We manage this risk with well-diversified portfolios built to deliver through cycles and over time. For the past few years, indices heavily concentrated in large U.S. technology companies have dominated the investment landscape and delivered returns beyond the reach of any diversified portfolio. We accept that short-term outcome because the CPP must remain resilient across many possible futures, not just the one that recently prevailed. We persist in building an enduring portfolio not with unrealistic expectation of immunity to volatility or geopolitics, but with a view to preserving the pension promise in all circumstances. The recent success of heavily concentrated market indices has caused some people to ask whether passive market replication might be a better investing approach. But a national pension fund is not designed to deliver for a short period, it is managed for generations. Chasing such a level of concentration would, in our view, expose the CPP Fund to undue risk of loss. Our portfolio is built to help ensure retirement income or contribution rates will not be put at risk over the long run. We are not, and never will be, beholden to short-termism. How do we know if we’re on track? The most important test is the financial health of the CPP Fund. The CPP Fund has been independently assessed to be financially sustainable for at least the next 75 years, largely due to investment returns. In fact, the CPP Fund’s funding position is so sound that federal and provincial governments have been able to propose a reduction in contribution rates, while maintaining benefits. That is the pension promise being delivered for Canadians. Joe Oliver: Active management costs Canadian pensioners big timeCPP Investments CEO says Carney government is offering interesting opportunities, but ‘devil’s in the details’ Measuring performance against benchmarks is a useful tool. By isolating and assessing the various investment decisions that comprise the overall portfolio, benchmarks drive our ongoing efforts to improve and reallocate among those strategies. But, like quarterly earnings reports at public companies, benchmarks can become counterproductive when they are treated as the sole objective, rather than a useful indicator. It’s human nature to focus on what happened most recently. But enduring institutions must remain grounded in their long-term purpose, even when that requires accepting short-term underperformance to alternatives that have worked in the moment but are not built to last. Throughout ups and downs in the market, our conviction about the kind of institution the CPP needs to be is unwavering. Canadians were bold when they built the CPP together. They were bold when they made the tough choices needed to sustain it. Maintaining our focus on the long-term for Canada is how CPP Investments emulates that same boldness. John Graham is President and CEO of CPP Investments, the independent asset management organization that manages the Canada Pension Plan Fund
John Graham: Protecting the CPP means taking the long view on investment returns
