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CPP Investments fund built to weather market challenges: CEO

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John Graham said he expects inflation will remain elevated in the near-term largely because supply-side issues haven’t been resolved.

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Canada’s largest pension fund manager says active management will win the day against today’s challenges of slowing economic growth, elevated inflation and weakened equity markets, its CEO said Thursday.

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Simply exposing capital to markets has been a “winning strategy” over the past decade amid increasing valuations.

But rising geopolitical tensions, supply chain disruptions, lockdowns and weakened public markets now make it an increasingly challenging environment for investors to navigate.

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“This grim picture might seem overwhelming, but in many ways CPP Investments, was built for times like this,” John Graham said in a luncheon speech to the Canadian Club of Toronto.

“We were specifically designed to create value over the very long term, and to be resilient in the face of wide-ranging market and economic conditions.”

Graham said he expects inflation will remain elevated in the near-term largely because supply-side issues haven’t been resolved. He pointed to pandemic lockdowns, national security and the war in Ukraine that disrupt the delivery of essential materials that fuel the global economy.

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The key is active management and diversification to mitigate risk and deliver a more resilient portfolio for its 21 million contributors and beneficiaries.

That means investing in a wide range of asset classes and growth-oriented companies that perform differently throughout the economic cycle.

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Capital markets have been in a “giving mood” over the past decade plus so simply ensuring exposure to markets was a good strategy. But active management shows its value when markets are volatile and we face rising geopolitical tensions.

“It is difficult to get this benefit if you are mainly a purely passive investor,” he said.

“It is going to be an investor’s market going forward and active management is the best protection for today’s market conditions, amid the slowing of global growth.”

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Graham said the institution’s flexibility doesn’t mean its immune to market volatility or having a tough year or two.

The pension fund underperformed other large Canadian pension funds by delivering a 6.8 per cent return last year to $539 billion. Its 10-year return was 10.8 per cent.

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“It means we’re well-positioned to weather the storm over the long term.”

Graham said CPP doesn’t try to call the bottom of markets, but rather stays invested and keeps looking for quality assets.

However, he said closing deals is more challenging because there’s a big gap between buyers and sellers on price.

“We are also seeing less competition for high quality assets, as short-term money is sitting on the sidelines.”

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