There’s a Better Way to Run Investment Teams, CPPIB Says

Teamwork has been at the core of human advancement since primeval times. According to the Canada Pension Plan Investment Board, asset allocators need more teamwork, and CPPIB has implemented a new plan to improve it.

The task of boosting teamwork grows more important as funds grow in assets under management, said Geoff Rubin, the unit’s chief investment strategist. “With a number of funds set to cross the $1 trillion threshold in the coming decades, new cross-disciplinary approaches will be needed to tap into investments spanning multiple asset classes and risk categories,” he said in a paper outlining a new teamwork approach that CPPIB calls “one fund.”

The key to this proposal is to boost communication and coordination among investment professionals by eliminating their “silos,” he said, and thus “target investments that don’t fit neat boxes, therefore tapping into outsized risk-adjusted return.”

As examples, he cited both a combination of equity and credit and an infrastructure project that requires buying nearby real estate. The new plan might even permit a fund to allocate money to a losing investment “if it is a contributor overall in terms of diversification,” he said.

The one fund concept is new to CPP, Canada’s largest pension fund (assets: C$539 billion, or US$416 billion). The size and importance of the retirement program makes this organizational change worth noting.

There have been multiple management studies about how teams interact. In a 2006 study called “Enhancing the Effectiveness of Work Groups and Teams,” scholars found that coordination and cooperation sometimes isn’t integrated into an organization’s method of operation, to the detriment of meeting overall goals. In another study, appearing in the Harvard Business Review in 2016, called “The Secrets of Great Teamwork,” the authors found that “modern teams are vulnerable to two corrosive problems—’us versus them’ thinking and incomplete information.”

CPPIB seeks to overcome those, in Rubin’s view. He outlined his approach recently in a May appearance at the University of Chicago Booth School of Business, where he called for “commitments over time that go beyond the individual, siloed, compartmentalized way that most investing in our industry happens.”

The current organizational structure for allocators is called “total portfolio,” based on silos. A big downside with that is that the staff “feels somewhat remote from the work they do day to day,” Rubin said. With the one fund system, he said, “We actually break down those silos and bring those investment teams together in a way that allows you to invest differently.”

The one fund plan seems to be a work in progress. One question is how to set up compensation judging under one fund. CPPIB needs “to really encourage that kind of appetite to solve a bigger problem than one that just resides within a group or team,” Rubin said.