The leaders of the Canada Pension Plan Investment Board (CPPIB) have challenged critics of its active investments to go ahead and “hold our feet to the fire”—as they are prepared to defend the strategy.
“We firmly believe that active management generates significantly higher risk-adjusted returns.”In a column published Monday in the Globe and Mail, outgoing CEO Mark Wiseman and senior managing director Mark Machin—who will succeed Wiseman June 13—defended the C$278.9 billion (US$217.2 billion) pension fund’s active management.
“Active management is the best way to serve your interests over the long term,” they argued, addressing the plan’s beneficiaries.
CPPIB embarked on its current strategy 10 years ago, shifting from purely bonds and stock indexes into active investments. Since then, the fund said it has generated $125.6 billion in net investment income, including $17.1 billion after costs that was purely the result of active management.
“We can say with confidence that our strategy is adding value,” Wiseman and Machin wrote.
Through active management, the incoming and outgoing CEOs said CPPIB has been able to capitalize on structural advantages including its long-term horizon, stable and predictable flow of contributions, and size. Additionally, they said active management has made it possible for CPPIB to address risks such as climate change.
“To ignore these advantages would be the sporting equivalent of benching Sidney Crosby, Connor McDavid, and Steven Stamkos for an Olympic gold-medal hockey game,” they wrote.
While critics have attacked the fund’s increasing costs, Wiseman and Machin argued that these costs need to be examined in the context of the additional long-term returns the fund has generated.
“Active management requires more resources, and therefore more expenses, than a passive strategy,” they concluded. “But we firmly believe that it generates significantly higher risk-adjusted returns.”