CPP Investment Board
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CPP Investment Board
CPP Investment Board
Crown corporation
IndustrySovereign wealth fund
FoundedDecember 31, 1997; 21 years ago (1997-12-31)
Headquarters1 Queen Street East, Suite 2500, ,
Key people
Heather Munroe-Blum (Chairperson)
Mark Machin (President & CEO)[1]:p.4
AUMIncrease $392.0 Billion (March 2019)[2]
Websitewww.cppib.com

The CPP Investment Board (French: L'office d'investissement du RPC), officially the Canada Pension Plan Investment Board, is a Canadian Crown corporation established by way of the 1997 Canada Pension Plan Investment Board Act to oversee and invest the funds contributed to and held by the Canada Pension Plan (CPP).

CPPIB is one of the world's largest sovereign wealth funds and one of the world's largest investors in private equity, having invested over US$28.1 billion between 2010 and 2014 alone.[3]As of March 31, 2019, the CPP Investment Board manages over C$392 billion in investment assets for the Canada Pension Plan on behalf of 20 million Canadians.[4][5]

History

The Canada Pension Plan was first established in 1966. For much of its history, the plan relied on contributions to pay benefits. By 1996, the federal government had determined that the CPP as then constituted was unsustainable.[6] Changes were made to the plan, gradually increasing the contribution rate to its current 9.9% and creating the CPP Investment Board.[6]

Under the direction of then Minister of Finance Paul Martin, the CPP Investment Board was created by an Act of Parliament in 1997 as an independent, but accountable, body to monitor the funds held by the Canada Pension Plan. The CPP Investment Board began its investing program in 1999, establishing the CPP Reserve Fund to hold investment earnings and CPP contributions not needed to pay current pensions.[7] It reports quarterly to the public on its performance, has a professional board of directors to oversee the operations of the CPP reserve fund, and also to plan changes in direction. As a Crown corporation, the CPP Investment Board is accountable to Parliament and reports annually through the Minister of Finance. While accountable to Parliament, the CPP Investment Board is not controlled by the government or subject to government appointments, its employees and directors are not part of the Public Service of Canada.

Mandate

The CPP Investment Board's mandate is laid out in its founding legislation, the Canada Pension Plan Investment Board Act (S.C. 1997, c. 40). Its sole investing mandate is to achieve a "maximum rate of return, without undue risk of loss."[8]

Investments

The CPP Investment Board invests in private equity, public companies, and real estate. The CPPIB invests in real estate and made their first direct office investment in Seattle in 2016.[9] Notable investments include 50% of the American pet store chain Petco,[10] 50% of American luxury department store chain Neiman Marcus, 50% of Australian office tower development International Towers Sydney, 40% of the Ontario Highway 407 toll highway, 21.5% of South Korean discount store chain Homeplus, and 19.8% of multinational media corporation Entertainment One.[11]

As outlined in its Policy on Responsible Investing, first adopted in 2005, the Board considers environmental, social and governance (ESG) issues/factors from a risk/return point of view and encourages companies to adopt policies and practices that enhance long-term financial performance.[]

Future and direction

Mark Machin is the current Chief Executive Officer of the CPPIB, replacing Mark Wiseman on June 13, 2016.

According to the 2013 Annual Report, about 63% of the fund's assets are now invested outside Canada, largely in the United States, Europe and Asia. In addition, the CPPIB has been broadening the scope of its investments to include emerging markets, although David Denison, CEO at the time, would not pinpoint a specific country or area. "Canada as a single market cannot accommodate the future growth of our organization," said Denison.

In recent years, the CPPIB changed direction in its investment philosophy. It evolved from investing exclusively in non-marketable government bonds to passive index-fund strategies and, in 2006, to active investment strategies.

Growth and strategy

According to the Office of the Chief Actuary of Canada, the CPP Fund needs a real rate of return of 4.0%, over the 75-year projection period in his report, to help sustain the plan at the current contribution rate.[]

In December 2013, the Chief Actuary reaffirmed that the CPP is sustainable throughout the 75-year timeframe of his 2012 report. Over this long timeframe it is expected that there will be periods where returns are above or below this threshold.

Consistent with the CPPIB's mandate to maximize investment returns without undue risk of loss, they pursue a value-added strategy that seeks to deliver returns over and above a market-based benchmark over the long term. That benchmark is called the CPP Reference Portfolio and under reasonable capital market assumptions, it can generate the long-term 4.0% real rate of return required to help sustain the CPP.

The CPPIB reserve fund receives its funds from the CPP and invests them like a typical large fund manager would. The CPP reserve fund seeks to achieve at least the projected return (inflation-adjusted) needed to help sustain the CPP[], a rate set at 4.0% by 2017 in the CPP actuary's report, starting from 3.2% in 2011. As indicated in its Financial Highlights for the fiscal year ended March 31, 2013, the CPP reserve fund averaged 4.2% return in the past 5 years, and a 7.4% return in the past 10 years, above the sum of projected Canadian inflation rates and the 4.0% target identified by the CPP Actuary report, or 6.3% in nominal basis, that is required for CPP contribution sustainability.

The CPP total assets are projected to reach the following levels according to the 2012 actuarial report: (in assets):[12]

  • $175 billion by 2013.
  • $300 billion by 2020.
  • $518 billion by 2030.

The strategies used to achieve these targets are:

  • Diversification. In 1997, the CPP fund was 100% invested in government bonds, but it has since diversified not only by asset class, but also internationally.
  • Employing basic asset allocation theories, with diversification of investments as one of the objectives. The asset mix has evolved over the years as follows:[13]
Asset 2008 mix 2013 mix
Public Equity 51.8% 32.1%
Fixed Income 25.6% 33.3%
Private Equity 10.9% 18.1%
Inflation Sensitive Assets 11.7% 16.5%
  • Using equity firms to assist in achieving targets for each asset class. The CPP reserve fund allocates certain amounts to various pre-qualified equity firms to be managed and used towards reaching the growth targets. For example, the CPP Investment Board hires private equity firms to help it invest in private companies, fund managers to help it invest in public equities, bond managers to assist in investing in bonds (within Canada and foreign bonds), and so forth.

Significant transactions

CPPIB, as part of a consortium, first invested US$300 million in Skype in September 2009. In May 2011 CPPIB sold its stake in Skype to Microsoft for US$1.1 Bn before debt repayment,[14] or US$933 million.[]

In 2009 CPPIB also invested in the $5.2-billion purchase of IMS Health with Texas Pacific Group and the $2.1-billion purchase of Macquarie Communications Group.[14]

In 2012 CPPIB acquired a 45% stake in ten shopping centers and two redevelopment sites from Westfield Group. CPPIB's equity investment was $1.8 billion and the total gross value of the properties was $4.8 billion.[15]

In May 2015, Unibail-Rodamco revealed it had signed an agreement with the Canada Pension Plan Investment Board to sell its 46.1 percent stake in German shopping mall operator MFI AG for EUR394 million.[16]

In May 2015, the sale of a joint 70% investment with BC Partners in U.S. cable television operator Suddenlink for over US$9 Bn to Altice was also announced. The interest had been acquired in a 2012 LBO.[17]

In June 2015, CPPIB announced it would acquire GE Capital's private equity lending portfolio for $12 billion.[18]

In October 2015, CPPIB announced plans to acquire Encana's Denver-Julesberg Basin Colorado oil and gas assets for $900 million (US).[19] The deal, with Denver-based partner, private equity firm The Broe Group, having a 5% share in the new Crestone Peak Resources partnership, was completed in July 2016.[20] Broe will manage the portfolio of more than 1600 wells.[21]

In November 2015, CPPIB and CVC Capital Partners acquired American pet supplier Petco in a deal worth $4.6 billion.[10]

In July 2016, CPPIB and Calgary-based Wolf Midstream Inc. purchased a 50% stake in Devon Energy's Access Pipeline located in Alberta.[22]

In September 2016, CPPIB and Cinven acquired the business-to-business accommodation wholesaler Hotelbeds for a purchase price of around EUR1.3 billion.[23]

As of December 2018, CPPIB held 90,000 shares or $6.1 million of equity in Geo Group, a private company that operates private prisons in the United States[24] that specializes in privatized corrections, detention, and mental health treatment.

Performance

The performance and the market value of the CPP Fund is reported on a quarterly basis.

Investments held by the CPP Fund include equities, fixed income (primarily government bonds), and inflation-sensitive assets (real estate, inflation-linked bonds and infrastructure). The CPPIB is making a major push into real estate, especially real estate in India.[25]

Historical information on the performance of assets available to the Canada Pension Plan, and financial statements of the CPP Investment Board, can be found under the Quarterly Reports and Annual Reports section of the CPPIB's website.

The total growth of the CPP Reserve Fund is derived from the CPP contributions of working Canadians, and the return on investment of the contributions.[26] The portion of CPP Reserve Fund growth due to CPP contributions varies from year to year, but have shown a slight decrease in the past 3 years. The historical growth with the investment performance is tabulated as follows:

Date Net Asset Value (CAD)¹ Rate of Return (annual)²
Mar 2003 $55.6 Billion -1.1%
Mar 2004 $70.5 Billion +10.3%
Mar 2005 $81.3 Billion +8.5%
Mar 2006 $98.0 Billion +15.5%
Mar 2007 $116.6 Billion +12.9%
Mar 2008³ $122.7 Billion -0.29%
Mar 2009 $105.5 Billion -18.6%[26]
Mar 2010 $127.6 Billion +14.9%[26]
Mar 2011 $148.2 Billion +11.9%[26]
Mar 2012 $161.6 Billion +6.6%[26]
Mar 2013 $183.3 Billion +10.1%[27]
Mar 2014 $219.1 Billion +16.5%
Mar 2015 $264.6 Billion +18.7%[28]
Mar 2016 $278.9 Billion +3.4%
Mar 2017 $316.7 Billion[5] +11.8%
Mar 2018 $356.1 Billion +8.0%
Mar 2019 $392.0 Billion +11.1%

¹Assets are as at the period end date (March 31).

²Commencing in fiscal 2007, the rate of return reflects the performance of the CPP Fund which excludes the short-term cash required to pay current benefits.

³Increased fund value due to worker and employer CPP contributions not needed to pay current benefits. The negative investment return amounted to $303 million CAD.[29]

Board of directors

Director since December 2010. Appointed Chair effective October 2014 Former Principal and Vice-Chancellor of McGill University, Montreal, Quebec. Former Vice-President of Research and International Relations, and Professor and Dean at the University of Toronto.

  • Ian A Bourne

Corporate Director, Calgary, Alberta. Director since April 2007. Retired executive vice-president and CFO of TransAlta Corporation

  • Robert L. Brooks

Corporate Director, Oakville, Ontario. Director since January 2009. Former vice-chair and group treasurer of the Bank of Nova Scotia

  • Ashleigh Everett

Corporate Director, Winnipeg, Manitoba. Director since February 2017. Director of Manitoba Telecom Services. Governance and Nominating (chair) committee.

  • Tahira Hassan

Certified Management Accountant of Canada, Toronto Ontario. Director since September 2015.

  • Douglas Mahaffy

Corporate Director, Toronto, Ontario. Director since October 2009. Recently retired Chairman, chief executive officer and director of McLean Budden

  • John Montalbano

Corporate Director, Vancouver, British Columbia Director since February 2017 Recently retired CEO of RBC Global Asset Management

  • Karen Sheriff

Corporate Executive, Halifax, Nova Scotia. Director since October 2012.

  • Jackson Tai

Corporate Director, Greenwich, Connecticut Director since June 2016

  • Kathleen Taylor

Corporate Executive, Lawyer, Corporate Director. Toronto, Ontario Director since October 2013.

  • Jo Mark Zurel

Chartered Accountant, Corporate Director, St. John's, Newfoundland and Labrador. Director since October 2012

  • D. Murray Wallace

Fellow, Institute of Chartered Accountants of Ontario, London, Ontario. Director since April 2007

Criticism

In 2009 executives of the Canada Pension Plan Investment Board took a 31.4% cut in their bonuses after questions were raised about the level of compensation at the crown corporation.[30]

As worldwide concern for global climate change implications increasingly call on institutional divestment from fossil fuels, CPPIB has also been criticized for failing to do so, both on climate grounds[31] and financial loss.[32][33]

See also

References

  1. ^ "2016 Annual report". CPPIB.
  2. ^ "Condensed Interim Consolidated Financial Statements of Canada Pension Plan Investment Board - December 31, 2017" (PDF). cppib.com. February 8, 2018. p. 1.
  3. ^ Primack, Dan (November 16, 2015). "The World's Largest Private Equity Investors Are..." Fortune. Retrieved 2019.
  4. ^ "CPPIB Homepage". Retrieved 2018.
  5. ^ a b "2017 Annual Report" (PDF). CPP Investment Board. May 26, 2017.
  6. ^ a b "Our History". CPPIB. Retrieved 2012.
  7. ^ "CPP Reserve Fund Grows to $91.7 Billion". News Releases. CPP Investment Board. Retrieved 2016.
  8. ^ "Canada Pension Plan Investment Board -- June 27, 2012" (PDF). Government of Canada. Retrieved 2012.
  9. ^ "CPPIB Buys its First Seattle Office Tower". Sovereign Wealth Fund Institute. October 10, 2016.
  10. ^ a b "CVC, Canada's CPPIB to buy Petco for about $4.6 billion". Reuters. 23 November 2015.
  11. ^ Mayers, Adam (April 14, 2016). "Some Canada Pension Plan investments that might surprise you". Toronto Star. Retrieved 2016.
  12. ^ Actuarial Report (26th) on the Canada Pension Plan. Office of the Superintendent of Financial Institutions Canada. 21 November 2013, Accessed 5 January 2016.
  13. ^ "CPP Investment Board - 2008 Annual Report" (PDF). www.cppib.ca. Retrieved .
  14. ^ a b CPPIB scoops windfall as Microsoft buys Skype for $8.5-billion. The Globe and Mail. Retrieved on 2013-07-26.
  15. ^ "CPPIB Press Release" (PDF).
  16. ^ James Regan (15 May 2015). "Unibail sells German mall operator stake to Canada's CPPIB". Reuters. Retrieved 2015.
  17. ^ Scott, Mark, and Emily Steel, "Altice's Deal to Buy Suddenlink May Be Prelude to Pursuit of Time Warner Cable", New York Times, May 20, 2015. Retrieved 2015-05-21.
  18. ^ https://www.reuters.com/article/2015/06/09/us-cppib-m-a-general-electric-idUSKBN0OP13D20150609, Canada's CPPIB to buy GE private equity lending arm for $12 billion, Reuters, 9 June 2015
  19. ^ Wallace, Alicia (8 October 2015). "Encana sells Colorado assets to Broe Group partnership for $900M". The Denver Post. Retrieved 2017.
  20. ^ "Canada Pension Plan Investment Board and The Broe Group Complete Acquisition of DJ Basin Oil & Gas Assets". Marketwired. Retrieved 2017.
  21. ^ Svaldi, Also (29 July 2016). "Encana Corp. completes sale of Denver-Julesburg Basin assets". The Denver Post. Retrieved 2017.
  22. ^ "Canada Pension Plan and Wolf Midstream invest big in Alberta pipeline". CBC News. July 14, 2016. Retrieved 2017.
  23. ^ Bray, Chad (28 April 2016). "TUI Group to Sell Hotelbeds Group for $1.3 Billion". The New York Times. Retrieved 2018.
  24. ^ Cecco, Leyland (December 3, 2018). "Canada pension fund investment into US detention firm larger than reported". www.theguardian.com. Retrieved 2018.
  25. ^ "CPPIB Initially Commits 200 Million Toward Sharpooji Venture". Sovereign Wealth Fund Institute. 1 December 2014. Retrieved 2014.
  26. ^ a b c d e "CPP Investment Board - Financial Highlights". www.cppib.ca. Retrieved .
  27. ^ "Equity markets Boost CPP Fund". Vancouversun.com. Retrieved 2013.
  28. ^ "CPP gained 18.7% last year, now worth $264B". cbc.ca. Retrieved 2015.
  29. ^ "CPP Investment Board reports 0.29 per cent annual investment setback". The Canadian Press. Retrieved .[permanent dead link]
  30. ^ CPPIB exec bonuses to be cut by about a third. Financialpost.com. Retrieved on 2013-07-26.
  31. ^ "A Fix for the Climate Polluting Canada Pension Plan : Friends of the Earth Canada". foecanada.org. Retrieved 2017.
  32. ^ "How not divesting from carbon economy has already hurt your pension". CBC News. Retrieved 2017.
  33. ^ Fillmore, Nick (14 November 2016). "Canada Pension Plan Knee-Deep In Unethical Fossil Fuel Stocks". HuffPost Canada. Retrieved 2017.

External links


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