CPP Investments CEO: The Canadian Model, Public vs Private and Investing for 22 Million Canadians

**Nicolai Tangen** (0:01)
Hi everyone, I'm Nicolai Tangen, the CEO of the Norwegian Sovereign Wealth Fund. And today I'm joined by John Graham, the CEO of CPP IB, which is the Canadian pension fund, basically looking after the savings of 22 million Canadians. Now, CPP IB is one of the most respected pension funds in the world, and the Canadian model has become a blueprint globally.
Now, what makes John stand out is that he is a scientist first, who found his way into one of the world's great financial institutions. And I'm really curious to dig in what your scientific mindset brings to investing, John, so big thank you for joining us.

**John Graham** (0:40)
Well, thank you for having me. Lot to cover.

**Nicolai Tangen** (0:42)
Absolutely.
Now, first of all, could you help us understand just what the Canadian Pension Plan is? Just how is it different from a fund like ours? Sure.

**John Graham** (1:02)
So CPP Investments were the third-party asset manager for the Canada Pension Plan. The Canada Pension Plan is the mandatory program that all working Canadians contribute to. So it would be somewhat similar to people in the US, to social security.
So it's meant to provide an inflation-protected, defined benefit for working Canadians.

**Nicolai Tangen** (1:31)
How big is it?

**John Graham** (1:32)
Today, the CPP fund is around $800 billion, but it actually is a hybrid plan. So just one of the things I think is important to appreciate, that really has a big influence on how we manage the money, is about 30 years ago, the Canadian government realized that the CPP at its current contributions and benefit rates was on a path to be exhausted. And this was because it was a pay-as-you-go program, money comes in, immediately goes out, and demographics were changing. You had an aging population, you had people having fewer kids, people living longer, and people living longer is obviously a good thing.
But the plan was on a path to being exhausted, so they restructured the plan. They increased the contribution rate, modified benefits, and they created CPP Investments as the money manager to invest the funds, the surplus funds that aren't immediately needed to pay out benefits.
And I think when we started out, that plan was about 15% funded, so really it was still a pay-as-you-go plan. And over time, our very first check was $12 million. So we got a check for $12 million about 27 years ago. Today, the plan sits at about $800 billion. And the plan is partially funded.

**Nicolai Tangen** (2:59)
And you are independent from the Canadian government. How hard is that to protect that independence?

**John Graham** (3:05)
Yeah, we were created to be independent with respect to investment decision-making, but we're still accountable. We still have accountabilities because we're accountable to all Canadians.
And I think this is something that the Canadian governments recognize is important to have both independence with investment decision-making. And that's enshrined in federal legislation. So when we were created, the CPP-IB Act basically enshrined our mandate to maximize return without undue risk of loss. And you asked the question, how do we differ from, let's say, a sovereign wealth fund? And I think the big difference is our pension plan, which means that we have liabilities.

**Nicolai Tangen** (3:44)
So when people try to replicate the Canadian model, what is it that they get wrong?

**John Graham** (3:48)
What is it they get wrong?

**Nicolai Tangen** (3:49)
Yeah.

**John Graham** (3:51)
First, I think the first important thing is governance. And pretty much all the Canadian plans have some similar level of governance in that there is independence around investment decision making, but obviously accountability for to the key stakeholders.
And that independence around investment decision making provides the flexibility to build an investment organization that has a lot of leavers to pull for driving returns. Public versus private, active versus passive, domestic versus global. And I think having, I'm a big believer in optionality and having those various leavers to pull over the long run drives value.

**Nicolai Tangen** (4:33)
And we will get back to some of them, but just in the meantime, you got eight pension funds in Canada, right? Sometimes called the Maple Eight.
So how did Canada develop this approach?

**John Graham** (4:46)
Yeah, and there's definitely more than eight, but there is a term Maple Eight that really captures probably the eight biggest. There's now Maple Nine, so there's another plan kind of coming in to Maple Nine, and sometimes it's Maple Ten.

**Nicolai Tangen** (5:00)
Is it good to have so many pension funds?

**John Graham** (5:02)
It's good. It's good. And I think they're very well run, they have had good governance, good performance. I've never been a huge fan of the Maple Eight concept, because I think one thing it does miss is that we're all a little bit different in that we all have different liability streams, we're all pension plans. So we all have liability streams. Like at the end of the day, we're investing the money to meet the pension promise. So in Canada, across 22 million Canadians, a promise has been made, right? So at every paycheck, you have a deduction that says CPP.