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For Canada Pension Plan Investments risk is not an option — it’s our job

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This newspaper recently published an extensive report on Canada’s large pension funds. At CPP Investments, we welcome the scrutiny. The strength of the Canada Pension Plan (CPP) matters to its 21 million contributors and beneficiaries.

Helping the CPP keep its promise to be a reliable foundation of retirement income for generations is at the heart of everything we do. Every dollar we spend, every risk we take, every market we approach is a deliberate decision taken with a view to producing value. We achieve our public purpose commercially, responsibly.

It’s no easy task. We seek returns that can overcome the big risks the CPP contends with, including inflation, declining fertility rates, improving mortality, a slowing economy, pandemics and armed conflicts. The more net income we deliver, the more it helps smooth out headwinds, helping to keep the CPP on solid ground well into the future. Because of these factors, our job has always been to aim high, not to walk the minimum line needed for solvency.

We have demonstrated that our path is on track. After 16 years, the fund is more than $160 billion larger than it would have been if we simply met sustainability estimates — after factoring the resources it took to amass that money. In total, we have added more than $343 billion in net investment income to the fund since we were created, after all costs.

Results like that do not come from taking a straight, flat road. We sharpen our skillsets, invest globally and find people who can help the fund punch above its weight in competition with formidable global investors. We are not timid, and Canadians expect no less.

To succeed, CPP Investments must not only find high-quality investments, but also contribute to the development of those businesses over time — improving efficiency, growth potential and sustainability. For example, by considering risks associated with climate and questionable corporate practices, we become better investors, able to both enhance returns and reduce risk. Not every investment will succeed, that’s the nature of the risks that we take. We actively assess how to improve their trajectories, or we cut our losses at opportune times.

Investing across the world in a diverse array of strategies requires that the fund take on the risks that make sense for the returns we expect. But risk is also a relative concept. We might think of CPP Investments as a 29-year-old investor, since we both share a horizon that stretches over several decades. Young investors can, and should, assume more risk than those on the verge of retirement.

While we have a youthful risk profile, we must safeguard public confidence, which means we also need a portfolio that is resilient. Yes, we are generating above average returns over time, but we must also place the fund in a safe harbour during market downturns, such as we experienced at the beginning of the pandemic. We continue to see the benefits of an “all-weather” portfolio during these volatile times. More to come when we publish our fiscal year results in a few weeks.

Every large investor knows the next decade will be challenging. Maintaining double-digit returns is probably not a realistic expectation. That is OK. While the ride may occasionally be bumpy, our seatbelts are fastened, and we’ve built a portfolio that we believe will be better over the long-term compared to one that was invested solely in public securities.

The world is increasingly complex. Amid these shifts, it has never been more important to help ensure a strong pillar of Canada’s retirement security system. Many can still remember the 1990s when the CPP had to be overhauled to ensure its long-term solvency. That is why we were created. Since then, we’ve continuously sought to earn Canadians’ trust that the CPP will be there for you when you retire through upholding high standards for transparency. You can count on us to continue this work.

Michel R. Leduc, senior managing director, global head of public affairs & communications, Canada Pension Plan Investment Board.