HIGHLIGHTS: John Graham - CEO of CPP Investments

**Nicolai Tangen** (0:01)
Hi, everybody, tune in to this short version of the podcast, which we do every Friday. For the long version, tune in on Wednesdays.
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** (0:47)
Well, thank you for having me. A lot to cover.

**Nicolai Tangen** (0:50)
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?

**John Graham** (1:02)
Sure. 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** (1:33)
Today, the fund, 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, you had 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 about $800 billion, and the plan is partially funded.

**Nicolai Tangen** (2:59)
So here you are, $800 billion. Just how do you decide where the money goes? How do you decide how to split the asset classes?

**John Graham** (3:07)
So we are very linked to our mandate. Our mandate, enshrined in federal legislation, is to maximize return without undue risk of loss, accounting for the factors that impact the funding of the plan.
That's our mandate. And so you got to invest the money, maximize return, try to grow the funding ratio of the plan, and make sure that we can meet these obligations or these promises that have been made.

**Nicolai Tangen** (3:39)
And you don't have, like we have a mandate which the ministry gives us, which tells us how much shares, how much bonds. You don't have that.

**John Graham** (3:47)
We don't have that. Literally our mandate is maximize return without undue risk of loss, taking into account the factors that impact the plan.

**Nicolai Tangen** (3:54)
So, you know, here you are, John Graham, 800 billion. Go and see what you can do with it.

**John Graham** (4:00)
Well, it started as 12 million and now it's 800 billion. So, and of that 800 billion, 550 billion is investment income. It does show the power of compound, right? So, 70% of the fund is investment income.
And so, we only, you know, quote unquote own the entirety of the investment process. So, to be a little bit technical, we take that and think there's kind of three big decisions we make, and we take a total portfolio approach, and fundamentally, we try to maximize the total return of the total portfolio. So, the first big decision, what level of risk are we going to take?
What level of risk will maximize return without undue risk of loss? How do we thread that needle of taking our time horizon? So, recognizing, and I think this is really important, we're a pension plan, we're not a wealth-maximizing vehicle.

**Nicolai Tangen** (4:55)
One asset class where you are where we are not is private assets. So, private equity, private credit. Now, you have one of the largest private market portfolios or anybody in the world, and so what is your view on that asset class just now?