WORKERS CAPITAL
CPPIB CEO says global growth to be
'challenging' over long-term
By David George-Cosh BNNBLOOMBERG May 24,2023
John Graham, president and chief executive officer of the Canada Pension Plan (CPP) Investment Board, told BNN Bloomberg in an interview that he expects the U.S. to resolve its debt ceiling debacle and is looking to raise liquidity to take advantage of “opportunities” the fund sees in equity and fixed-income markets.
“What is going to drive global growth over the next 10 years? That’s one of the things that keeps us up at night,” Graham said.
Graham’s comments come in the wake of CPP Investments releasing its latest annual report for fiscal 2023 on Wednesday, in which the pension fund reported a 1.3 per cent return. That was the lowest return over the past 10 years but above the 0.1-per-cent benchmark tied to its reference portfolio measures.
Funds under CPP Investments’ management increased by a total return of 10 per cent over the past 10 years, it reported, which Graham acknowledged “would be challenging over the next 10 years to repeat that.”
Canada’s largest money manager said it has $570 billion in assets under management, up about $31 billion due to a profit of $8 billion and net transfers of $23 billion from Canadians in its last fiscal year.
The fund’s return for the year recorded a shortfall in its fixed-income and real estate investments as long-duration government bonds and higher interest rates led to a drag on those asset classes. Those declines were offset by strong gains from its private equity, infrastructure and credit investments, CPP Investments said.
Meanwhile, Graham described the fixed income markets as “interesting” as central banks around the world lifted interest rates to help combat rapidly rising inflation. CPP Investments’ booked a 0.8-per-cent decline among its fixed-income assets that it attributed to exposure to longer-dated government bonds. He noted that CPP Investments will continue to be “constructive” in its energy portfolio investments.
“The path to get here was painful with discount rates rising,” said Graham. “But we’re in a better place in terms of fixed income than we were a year ago.”
A weaker Canadian dollar served as a tailwind to CPP Investments as 78 per cent of its net assets were derived in foreign currencies. CPP Investments recorded a $25 billion gain, or an annual increase of 5.1 per cent, thanks to its foreign exchange investments.
CPP Investments also said that Graham’s compensation rose slightly higher to $5.38 million last year – $4.6 million of which was tied to various annual incentives.
CPP Investments reports 1.3 per cent return
for its latest fiscal year
The Canadian Press May 24, 2023
The Canada Pension Plan Investment Board is bracing for headwinds in the event of a recession but said a wide range of investments makes it well-positioned for uncertain economic conditions.
The CPPIB reported Wednesday it earned a net return of 1.3 per cent in its latest fiscal year as inflation and rising interest rates weighed on both stock and fixed-income markets.
The board said the investment gains combined with net transfers from the Canada Pension Plan brought its net assets to $570 billion on March 31, up from $539 billion a year earlier.
"I think we've been trying to be very clear and share the investing market has gotten more competitive and more challenging," said CPP Investments chief executive John Graham in an interview.
"We expect forward-looking returns to be down compared to where they've been historically, but we're also in a position where we're really benefiting from active management and benefiting from diversification."
Graham said geopolitical events and a potential recession could be difficult to forecast, but CPP Investments is well-prepared.
"The key is for us to build a resilient portfolio — a portfolio that will perform through a wide range of macroeconomic and geopolitical scenarios," he said. "The way we do that is diversification."
CPP Investments said the gain for its latest fiscal year reflected returns on investments in infrastructure and certain U.S.-dollar-denominated private equity and credit assets, which benefited from foreign exchange. External investment managers using quantitative, equity, and fixed-income trading strategies also contributed positively to results, the firm said.
A weaker loonie against the U.S. dollar and other major currencies also helped boost investment returns.
The increase included $8 billion in net income and $23 billion in net transfers from the Canada Pension Plan.
But its performance was partially offset by declines in both equities and fixed income across major markets as high inflation and rising interest rates weighed heavily on both asset classes.
"We had headwinds in certain parts of the portfolio and tailwinds in other parts of the portfolio," said Graham, who highlighted challenges in office real estate, retail and the technology space over the past year.
"Certain asset classes continue to be pretty robust, like renewable had a pretty robust year, conventional energy had a robust year," he said.
As of March 31, CPP Investments' portfolio included 33 per cent in private equities, 24 per cent in public equities, 12 per cent in fixed come, 13 per cent in credit investments, nine per cent in real estate and nine per cent in infrastructure.
In addition to investing across various asset classes, Graham said global diversification is key to CPP Investments' strategy for navigating a possible recession.
But amid Canada's ongoing political tensions with China, Graham said CPP Investments remains "surgical" and "selective" in determining which companies in that country to invest in.
He said CPPIB has invested around nine per cent of its funds in China and "we constantly debate whether that's the right amount."
"The right amount is really based on whether we think we're going to get compensated on a going forward basis for the risk," he said.
"We do believe that we should have exposure to China because it is the world's second largest economy. It is a fast-growing economy and it's very connected right now to the broader world. We certainly are aware and alive to some of the challenges and we spend a lot of time thinking about how one should invest in China."
On a relative basis, the fund’s net return of 1.3 per cent for the year beat the 0.1 per cent return by its aggregated reference portfolios over the same period.
The fund's 10-year annualized net return stood at 10.0 per cent.
This report by The Canadian Press was first published May 24, 2023.
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