Canada Pension Plan Investment Board (CPP Investments) was created in 1997 by an Act of Parliament with the objective to invest the Fund assets to maximize returns without undue risk of loss, having regard to the factors that may affect the funding of the Canada Pension Plan (CPP). We invest funds in the best interests of CPP’s more than 20 million contributors and beneficiaries. We hold ourselves to high standards of investment management, as well as transparency and accountability.
CPP was created in 1966. Over time, the fiscal position of the CPP began to deteriorate as a result of a number of factors, including demographic shifts.
In 1995, the Office of the Chief Actuary of Canada released its 15th actuarial report on the CPP, concluding that the “CPP Account would be exhausted by the end of 2015.” Because legislative changes to the Canada Pension Plan require the approval of two-thirds of the provinces representing two-thirds of the country’s population, finance ministers from across the country needed to collaborate to develop a solution. After extensive negotiations, an agreement was reached in 1997. It included increasing contributions, modifying benefits slightly, and creating the Canada Pension Plan Investment Board.
We are accountable to Parliament and to federal and provincial ministers who serve as the CPP stewards. However, we are governed and managed independently from the CPP itself, and operate at arm’s length from governments. We take our responsibility to Canadians very seriously and operate with a clear mandate – to maximize returns without undue risk of loss.
Yes. The Canada Pension Plan Investment Board Act (CPPIB Act) has safeguards against any political interference. CPP Investments operates at arm’s length from federal and provincial governments with the oversight of an independent, highly qualified professional Board of Directors. CPP Investments management reports not to governments, but to the CPP Investments Board of Directors. The CPP Investments Board approves investment policies, determines with management the organization’s strategic direction and makes critical operational decisions.
CPP Investments assists the CPP in meeting its obligations to contributors and beneficiaries. To enable this, Canadian governments created a unique governance model allowing CPP Investments to operate as a professional investment organization with a commercial, investment-only mandate. All assets managed by CPP Investments are strictly segregated from government funds.
We are, however, accountable to Parliament and to federal and provincial ministers who serve as the CPP stewards. The CPPIB Act holds our Board of Directors and Management accountable for their performance under a rigorous public accountability regime. We also go beyond our legislated requirements and make every effort to ensure federal and provincial stewards, as well as Canadians, are kept informed of our activities.
Every three years, the Office of the Chief Actuary of Canada conducts an independent review of the sustainability of the CPP over the next 75 years.
In December 2019, the Office of the Chief Actuary reaffirmed through its latest triennial review that each part of the CPP remains sustainable at the legislated contribution rates throughout the 75-year period of her report (i.e., until 2095), based on actuarially accepted assumptions.
The Chief Actuary assumes that the base CPP and additional CPP accounts will earn an average annual real rate of return of 3.95% and 3.38%, respectively, over that period after taking into account inflation and all investment costs and expenses.
In addition to future return expectations, this review takes many factors into account, including:
The growing base of contributors and employment earnings;
The rising ratio of those receiving pension benefits relative to contributors; and
Expected increases in life expectancy.
The next actuarial review will cover the status of both base and additional CPP as at December 31, 2021 and will be next performed in 2022.
As of March 31, 2021, the Fund’s 10-year net nominal annualized return of 10.8% (or 9.1% on a net real return basis) is comfortably above the Chief Actuary’s assumption over this period.
CPP Investments is distinct from the Government of Canada and does not get involved in the administration of CPP contribution or benefit payments which is the role of Employment and Social Development Canada (ESDC). CPP Investments’ role is to invest the assets of the Fund that are not needed to pay current benefits.
To find out more about CPP contributions and benefits, please visit the Service Canada website or call 1-800-277-9914 (Canada and the United States toll-free) or 1-613-957-1954 (call collect) outside of Canada and the United States as Service Canada manages the administration of the CPP program.
There is only one CPP. However, federal and provincial governments decided in 2016 to expand the CPP to provide enhanced future benefits for workers who contribute. As the investment manager of the Fund, CPP Investments is responsible for prudently investing the additional contribution amounts arising from the enhancement to the CPP. CPP Investments started investing CPP contribution amounts in early 1999. CPP Investments received the first additional Canada Pension Plan (CPP) contribution amounts in January 2019.
Both the base CPP and additional CPP will have the full advantage of CPP Investments’ global network, expertise, investment strategies and risk governance framework. CPP Investments’ strategy is to build a single, resilient Fund with a view to strong performance for both accounts.
CPP Investments has designed an investment structure that will address the different funding requirements of the base CPP and additional CPP. This structure ensures fairness between the base CPP and additional CPP accounts, and that both benefit from CPP Investments’ strengths and have a widely diversified portfolio with appropriate distinct risk characteristics for each account.
As a global investment organization, we invest in public equities, private equities, bonds, public and private debt, real estate, infrastructure and other areas. We want Canadians to be informed about our investment strategy and what this means for how we manage their money. We disclose our investments on an annual basis at year-end (March 31).
You can read about most of our holdings in the following lists:
Please note that, as our disclosure policy states, we “do not disclose information regarding investments under consideration or not completed, and we respect third-party confidentiality agreements.” We also do not publish information that is commercially sensitive.
We compete around the world to secure and manage public and private assets to maximize returns and deliver sustainable value. We have global teams who bring deep expertise and local knowledge. We ensure the Fund has both asset and geographic diversification to achieve strong returns, to make it more resilient to single-market volatility and to safeguard the best interests of current and future beneficiaries against other factors affecting the funding of the plan.
We generally do not respond to unsolicited investment proposals.In order to build a diversified portfolio, CPP Investments invests in public equities, private equities, real estate, infrastructure and fixed income instruments. Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, San Francisco, São Paulo and Sydney, CPP Investments is one of the largest institutional investors in the world and explores investment opportunities that meet our criteria and scale.
The size of Canada’s market is insufficient to address both the returns and risk requirements of the Fund. Our mandate is to help sustain the future pensions of 20 million CPP contributors and beneficiaries by maximizing returns without undue risk of loss, having regard to the factors that may affect the funding of the CPP. Most of the demographic and economic factors that affect the sustainability of CPP are domestic in nature. Therefore, global diversification of the Fund is critical to managing these risks.
With 15.7% of our portfolio invested in Canada as of March 31, 2021, we will always have a large part of the Fund invested here. But, a Fund of our size cannot be overly dependent on the strength of the Canadian economy and so we are systematically looking for opportunities to diversify internationally. Portfolio diversification by asset class and by geography is a fundamental part of CPP Investments’ long-term investment strategy.
As noted in #3 above, the Office of the Chief Actuary reaffirmed through its latest triennial review that the CPP remains sustainable at the current contribution rate throughout the 75-year period of the report, based on actuarially accepted assumptions. It is assumed that base CPP and additional CPP accounts will earn an average annual real rate of return of 3.95% and 3.38% respectively over that period after taking into account inflation and all investment costs and expenses.
As of March 31, 2021, the Fund’s 10-year net nominal annualized return of 10.8% or 9.1% on a net real return basis is comfortably above the Chief Actuary’s assumption over this period.
It is important to note that the 3.95% and 3.38% rates of return are not CPP Investments targets. Our mandate is to maximize returns without undue risk of loss, having regard to the factors that may affect the funding of the CPP, and so our investment programs are designed to meet this mandate.
CPP Investments uses performance benchmarks at the total portfolio (Fund level) to objectively measure and evaluate investment performance. Our benchmarks are our Reference Portfolios for base CPP and additional CPP and are a representation of the passive public investment alternatives that the Fund might otherwise hold. The Reference Portfolios provide a clear benchmark for long-term total returns on the additional CPP and base CPP Investment Portfolios. The Reference Portfolios differ between the additional CPP and base CPP accounts to reflect the different risk levels prudently targeted for each of their long-term investment portfolios. For the base CPP, CPP Investments has adopted a Reference Portfolio of 85% global equity/15% nominal bonds issued by Canadian governments. For the additional CPP account, CPP Investments has adopted a Reference Portfolio of 50% global equity/50% nominal bonds issued by Canadian governments.
CPP Investments uses these Reference Portfolios as benchmarks and compares them to total returns, total portfolio risk, and dollar value-added, net of all costs.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Fair value is a market-based measurement and therefore incorporates those factors that market participants would consider when pricing an investment or investment liability.
Quoted market prices are used to measure the fair value for investments traded in an active market, such as public equities and marketable bonds.
Where the market for an investment is not active, such as for private equity, private debt, real assets, and over-the-counter derivatives, fair value is determined by valuation techniques that make maximum use of inputs observed from markets, such as a multiple of earnings derived from a set of publicly traded comparable companies.
Additional techniques include the use of recent arm’s-length transactions, the current fair value of another investment that is substantially the same, discounted cash-flow analysis, pricing models and other accepted industry valuation methods.
For more information about our valuation practices, watch the video below:
The nomination process to CPP Investments’ Board of Directors is designed to ensure that only those with appropriate and desired expertise, most generally in investment, business, and finance, are appointed to the Board.
The nomination process to CPP Investments is a well-defined and multi-step nomination and appointment process. Directors are appointed by the Governor in Council following a recommendation by the federal Minister of Finance. Before making that recommendation, the federal Minister is required to consult with the Finance Ministers of the participating provinces.
The Minister of Finance of Canada is authorized to appoint—and in practice has appointed—a nominating committee to advise on appointments, which consists of representatives of each of the participating provinces and a representative designated by the federal Minister. As this process has evolved, CPP Investments has come to take initial steps: under the supervision of the Governance Committee of the board of directors, a search firm is engaged and CPP Investments proposes individuals to the governmental nominating committee. The nominating committee then recommends candidates for appointment and re-appointment to the federal Finance Minister.
The Board posts a Notice of Appointment Opportunity on CPP Investments’ website. This provides the general public with the opportunity to view the critical competences required of a Director and to submit one’s name for consideration. Candidates arising from this process augment those identified by external executive search firms to ensure we consider the widest possible range of highly qualified candidates.
Managing the investment operations of one of the world’s largest retirement funds requires highly skilled professionals with significant experience in investment management, portfolio design, risk management and investment operations. Competitive compensation is essential to attract and retain this talent to develop and manage CPP Investments’ highly sophisticated investment programs.
CPP Investments’ compensation framework meets—and in certain cases exceeds—the G20 compensation principles, which requires a substantial proportion of management compensation to be variable, and for performance to be assessed and paid for over a prolonged period of time. CPP Investments’ pay-for-performance approach directly links compensation to both investment and individual performance. The majority of total pay is incentive-based and pay is linked to performance over a rolling five-year period, consistent with CPP Investments’ focus on long-term investment performance.
Calculation of total compensation depends on three factors:
a) Total Fund returns and investment income generated relative to our market-based benchmarks;
b) Department and group performance; and
c) Performance against predetermined individual objectives.
To deliver strong performance, CPP Investments is committed to sourcing and securing the most attractive investment opportunities globally in an efficient and cost-effective way. We have confidence that, with our comparative advantages as an investor, CPP Investments’ active management strategy will deliver attractive returns over the long run.
We disclose our costs on an annual basis. As of March 31, 2021, total costs consisted of the following:
Operating expenses: operating expenses reflect the direct costs incurred to manage the Fund. Total operating expenses were $1,417 million this year, representing an operating expense ratio of 31.4 bps, compared to $1,254 million in fiscal 2020 or 30.6 bps. The operating expenses remained relatively steady over a five-year period.
Investment management fees: Total fees paid to external asset managers amounted to $2,723 million, compared to $1,808 million in fiscal 2020. The $915 million year-over-year increase was driven by a greater volume of assets under the direction of external fund managers growth of funds in emerging markets, and higher performance fees paid to fund managers in public market strategies and real estate. Performance fees are paid to external managers when higher than expected returns are earned for CPP Investments, which helps ensure an alignment of interests.
Transaction costs: Transaction costs for fiscal 2021 totalled $291 million compared to $390 million in the prior year, a decrease of $99 million as we pursued fewer private market transactions. Transaction costs vary from year to year as they are directly correlated to the number, size, and complexity of our investing activities in any given period.
CPP Investments also incurred financing costs associated with its use of leverage. CPP Investments’ strong balance sheet, measured by a “AAA” credit rating, has increasingly provided access to a range of cost-effective financing options to make additional and more diversified investments while maintaining the Fund’s risk and liquidity targets. Financing costs include expenses from a variety of leverage generating strategies, ranging from debt issuances to derivative transactions. Financing costs were $1,217 million in fiscal 2021, a decrease of almost 50% compared to $2,429 million for the previous year. The decrease over the prior year of $1,212 million is attributable to lower effective market interest rates.
This level of total costs reflects the resources required to maintain and further develop CPP Investments’ infrastructure, processes, systems and personnel to support the organization’s international footprint, which today consists of nine offices.
When Canada’s provincial and federal governments created CPP Investments, they legislated the organization to seek a maximum rate of return without undue risk of loss. We are explicitly required to act in the best interests of contributors and beneficiaries and to take into account the factors that affect the financial obligations of the CPP. The clarity of our mandate supports the important investment challenge we face to achieve sufficient growth to sustain the Fund.
We believe that considering environmental, social and governance (ESG) factors in our investment decisions and asset management activities will lead to better long-term investment performance across the Fund. A company’s approach to ESG often serves as a good indicator of the quality of the business, its management and board oversight, and how it will perform over the long term.
In keeping with our commitment to disclose our sustainable investing activities, our annual Report on Sustainable Investing provides a detailed review of our activities and achievements. For more information about our approach to sustainable investing, please visit the Sustainable Investing section of our website.
Our sustainable investing efforts focus on three main areas: integration, engagement and collaboration.
ESG risks and opportunities are incorporated into our investment decision-making and asset management activities, as standard practice. Given CPP Investments’ mandate to pursue maximum investment returns without undue risk of loss, we integrate ESG factors into our investment analysis alongside other investment considerations, rather than screening investments or, conversely, targeting investments, based on ESG factors alone.
We are an active, engaged owner and work to enhance long-term performance of companies in which we invest by engaging, either individually or collaboratively, with other investors. We encourage companies to provide better disclosure and adopt better practices on ESG factors that we believe are material to the long-term performance of the company. We pursue the full spectrum of engagement that ranges from thoughtful exercise of our proxy voting rights to direct discussions with the Board Chairperson. We currently have five focus areas for our engagement program: climate change, water, human rights, executive compensation and board effectiveness.
We collaborate with organizations seeking improvements in transparency and standards on ESG, conduct research and participate in ESG-related regulation consultations and advocacy. We join and actively contribute to initiatives focusing on specific subject matters, such as governance practices and others that advocate for broader factors, such as fostering long-term thinking in the investment and corporate worlds. These efforts further our ability as an investor to enhance long-term performance of the Fund.
At CPP Investments, we view climate change as one of the world’s most significant physical, social, technological and economic challenges. Given our exceptionally long investment horizon, we actively address climate change to increase and preserve economic value, in accordance with our purpose. We make decisions in the best interests of current and future beneficiaries – including what and when we buy, hold or sell. To do so, we access and carefully evaluate data, science and prudent forecasts. As world energy markets transition to lower-carbon sources, the implications for investors will be far reaching.
CPP Investments’ efforts to understand these implications and to take diligent action started more than a decade ago and will accelerate in the coming years. We have taken a leading role in encouraging companies to improve climate change disclosure and practices, helping develop the standards for how they do this. We believe companies have a responsibility to their stakeholders to be transparent about the challenges posed by climate change. We seek to be a leader among asset owners and managers in understanding the investment risks and opportunities presented by climate change. To help address risks and opportunities, CPP Investments has established a Climate Change Program with six work streams. Since 2017, CPP Investments has invested more than $2 billion in renewable energy projects. This helps diversify the portfolio as the world transitions to a lower-carbon energy supply, production and use.
What is CPP Investments’ approach to sustainable investing?
How does CPP Investments view climate change risks and opportunities?