The Canada Pension Plan Investment Board (CPPIB; French: Office d’investissement du régime de pensions du Canada), operating as CPP Investments (French: Investissements RPC), 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).

CPP Investments is one of the world’s largest investors in private equity, having invested over US$28.1 billion between 2010 and 2014 alone.^[3] Despite being a Crown corporation, CPPIB is not considered a sovereign wealth fund because it operates at arm’s length from the Government of Canada and solely manages CPP contributions paid by workers and employers, not public funds.^[4][5][6]

As of December 31, 2021, the CPP Investment Board manages over C$539 Billion in assets under management for the Canada Pension Plan on behalf of 20 million Canadians.^[2][7]

History[edit]

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.^[8] Changes were made to the plan, gradually increasing the contribution rate to its current 9.9% and creating the CPP Investment Board.^[8]

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.^[9] 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[edit]

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.”^[10]

Investments[edit]

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.^[11] Notable investments include 50% of the American pet store chain Petco,^[12] 50% of American luxury department store chain Neiman Marcus, 50% of Australian office tower development International Towers Sydney, 50.01% of the Ontario Highway 407 toll highway,^[13] 21.5% of South Korean discount store chain Homeplus, and 19.8% of multinational media corporation Entertainment One.^[14] Other prominent investments are made in Indian companies Byju’s, Delhivery, Embassy Office Parks, Eruditus, Power Grid Corporation of India, SBI Life Insurance Company etc.^[15]

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.^{[citation needed]}

Future and direction[edit]

John Graham is the current Chief Executive Officer of the CPPIB, replacing Mark Machin on February 26, 2021. Mark Machin resigned after traveling to the United Arab Emirates to receive a COVID-19 vaccine.^[16] Prior to Machin, Mark Wiseman was CEO until 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.^{[citation needed]}

Growth and strategy[edit]

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.^{[citation needed]}

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^{[citation needed]}, 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 2018 actuarial report: (in assets):^[17]

• $418 billion by 2020.
• $879 billion by 2030.
• $1,683 billion by 2040.

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:^[18]

The CPP Investment Board was established by an Act of Parliament in December 1997.

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.

Our detailed mandate and objectives

Our mandate is set out in legislation. It states that:

• We invest in the best interests of CPP contributors and beneficiaries.
• We have a singular objective: to maximize long-term investment returns without undue risk, taking into account the factors that may affect the funding of the Canada Pension Plan and its ability to meet its financial obligations.
• We provide cash management services to the Canada Pension Plan so that they can pay benefits.

Our unique structure

The CPP Investments mandate is based on a governance structure that distinguishes us from a sovereign wealth fund. We have an investment-only mandate, unencumbered by political agendas and insulated from political interference in investment decision-making. Our management reports to an independent Board of Directors.

In carrying out our mandate, we aim to continually develop, execute and enhance the investment strategy that balances prospective risk and reward in order to ensure the long-term sustainability of the CPP Fund.