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Mark Machin #10 Mark Machin President & CEO Canada Pension Plan Investment Board Art by Chris Buzelli

Fund Size

Sizing Up Canada’s Largest Public Pension

On May 19, celebrated investor and President and CEO of the Canada Pension Plan Investment Board (CPPIB) Mark Wiseman announced he was departing for BlackRock. The unexpected exit placed the responsibility for C$287.3 billion (US$219 billion) and 19 million pensioners into the hands of Wiseman’s former deputy, Mark Machin.

The mammoth fund had flourished under Wiseman’s tenure, growing by 73.3% over his four years at the helm. As the new CEO, Machin has said he plans to stick to the long-term strategic plan implemented under his predecessor—a plan that he, as a member of the fund’s senior management, had helped develop. 

The strategy builds on several core components of CPPIB—not the least of which is its fund size. Already the largest public pension fund in Canada, it is only going to get bigger over the coming years, thanks to an expansion plan approved this summer by the country’s finance ministers.

The expansion, which will take place over seven years starting in 2019, will eventually raise participant and employer contributions by 1% each. But even before that improved cash flow is taken into account, CPPIB projects the fund will grow beyond C$500 billion by 2030—and to more than C$1 trillion before 2050.

“This scale means we can invest substantially in private markets, many of which are larger than their public-market counterparts and are expected to offer greater returns over time,” says Michel Leduc, global head of public affairs and communications at CPPIB. Such investments include the 2015 purchase of a 34% stake in Associated British Ports, the UK’s leading port operator—or, more recently, a C$1.2 billion investment in a real estate portfolio of Toronto and Calgary office buildings.

CPPIB’s size also gives it the capacity to attract and retain talent, as well as “build the sophisticated tools, systems, and analytics that are required to support an investment program of our magnitude,” Leduc adds. “Our scale also means we can seek the best possible investment opportunities wherever they may be.”

While size has its advantages, it does come with constraints. “Our size can make it inefficient to pursue attractive investment opportunities that are too small or too specialized for us to scale economically,” Leduc says.

Some critics—most notably the Canadian think tank Fraser Institute—have even argued that CPPIB’s size has led it to spend more to invest its assets compared to smaller peers. In a paper published in February, the institute’s researchers Philip Cross and Joel Emes claimed there were no economies of scale at larger pension funds, as commonly believed—and, in fact, there could even be “diseconomies of scale… because of the complexity of implementing their investment strategies.”

“Larger does not mean more efficient,” Cross explained in an April interview with CIO.

But while CPPIB may not be “low cost,” it has still delivered “high value” to its contributors and beneficiaries, Leduc argues. “Because of our long-term horizon, we are able to be patient and deploy capital prudently, and can avoid situations where we may be forced to sell at inopportune times,” he adds.

So far, CPPIB’s investment strategy has paid off: Of the Canada Pension Plan’s nearly C$290 billion in assets, roughly 57% comes entirely from investment returns. Only time will tell if Machin can continue the good work of his predecessors—but as a truly long-term investor, CPPIB has plenty of time to spare. —Amy Whyte

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