In his first few months as CEO of the Canada Pension Plan Investment Board, John Graham has already seen big changes in how the country’s largest pension fund invests its nearly half a trillion dollars for its contributors. 

On Thursday, CPP Investments posted its annual report for its 2021 fiscal year, which ended just a month into Graham’s leadership; the 10-year CPP veteran unexpectedly replaced Mark Machin in February. The fund, which manages $497.2 billion in net assets for more than 20 million Canadians, generated a record 20.4 per cent net annual return for the fiscal year ended March 31, after ending its fiscal 2020 with just a 3.1 per cent return. Its infrastructure portfolio recovered from a one per cent loss to a 12.9 per cent return, and energy and resource holdings flipped from a 23.4 per cent loss to a 45.8 per cent return. 

Still, CPP Investments contended with foreign-exchange losses of $35.5 billion, in large part because of the loonie’s strength against the U.S. dollar. And it underperformed its own internal benchmark portfolio—a reference it uses to measure its risk and performance against the wider market. The reference fund, propelled by the year’s public-market bull run, saw a 30.4 per cent return, or $35.3 billion more than CPP Investments’ actual rate. 

In an interview with The Logic Thursday, Graham discussed how the fund’s performance measured up, the possibility of adopting net-zero targets and whether he’s worried about the “silver tsunami.”

This interview has been edited and condensed for clarity. 

In a statement today, you noted the year was bookended by extremes. How is the fund’s approach to investing different now than it was at the start of the pandemic?

I was the global head of credit at the time. Coming into the early days of the pandemic, after the monetary fiscal stimulus had started, you had markets still close to lows, and we were able to invest in very high-quality assets at historically low prices. There were a lot of what I call thematic trades going on last year: investing broadly in high-quality assets and riding the return back to normality. Today, it’s a little bit different. Many markets around the world are at highs. Investing now is about leveraging our superior selection skills. It’s about rolling up your sleeves, and really doing deep, fundamental diligence, and taking advantage of the breadth we have from a geography and asset-class perspective, but finding those individual specific investments and putting them in our portfolio. 

CPP’s returns hit a record high last year, but they were below its reference portfolio returns. Is it a priority to get those returns back above the benchmark? And how do you do that, with low interest rates expected to buoy the public markets for at least a couple more years?

We’re not going to get fussed in 12-month periods because that’s not how our investment portfolio is created. The job of our portfolio is to create long-term value, building growth to pay long-term obligations, and not get distracted by year-to-year markets. We want to create an enduring portfolio for the long run. If stocks continue on many more years of a bull market, certainly the assets we have—which are much more diversified into private assets and real assets—will also grow because there’s still a reflection of a good economy. If we see another 50 per cent return on the global public-equity markets each year for the next three years, we will continue, very likely because of the nature of our portfolio, to not achieve the same level. But we need to be comfortable with that, because it’s a portfolio we’ve created for multiple generations.

In the past few months, swarms of banks, companies and institutional investors have set targets to achieve net-zero emissions by 2050, and other interim emissions-reduction targets. Why hasn’t CPP Investments set emissions targets for its portfolios? 

I think we are a very engaged and very active investor with respect to ESG [environmental, social and governance]. We have embedded climate change and climate-change risk and opportunities into how we invest, how we select securities, how we manage our assets, how we vote in our public portfolios, with a view that climate change is one of the biggest risks that the world is facing. Also, as an investor, our approach is to engage [portfolio companies], to share our expectations around disclosure, transparency and risk management. And to really engage in this—there will be more discussion to come on this—but I’d say it already very much is embedded in how we invest and how we build the portfolio.

When you say there’s more to come on this, do you mean CPP Investments will eventually set net-zero targets? 

More to come. 

Something I hear a lot from folks in venture capital is that public pension funds in Canada, with some exceptions, don’t invest enough in VC. This gets at the broader question of pension funds’ mandates and whether they should concern Canada’s economic growth and future stability as a country, not just individual pensioners. Do you see CPP Investments expanding its mandate to prioritize growth for the country, not just its clients?

We have a single fiduciary mandate, and that’s to deliver the best return to our contributors and beneficiaries. We invest where we see opportunities, and we see lots of opportunities in the VC space and in the growth-equity space. And it’s an area we’ve been building out over the past couple years. We started a VC program a few years ago and hired a team, and we’ve been more active in the space. My background is science, and I really see that in the private equity space, we need to cover venture capital, growth equity and the more traditional leveraged buyouts. 

There’s a general concern that we have an aging workforce, and that pension contributions won’t keep pace with the returns that funds have to make to retirees. How is CPP Investments coping with that?

We have a mandate to maximize return without undue risk of loss. Every three years, the chief actuary does an assessment of the sustainability of the CPP. The most recent report showed that CPP will continue to be sustainable for 75 more years. So the CPP plan works. 

In Alberta, we’re seeing pressure to shift CPP’s clients to the Alberta Investment Management Corporation, in part to address this problem of the “silver tsunami.” Part of the argument is that Alberta has a young population, and if the province manages its own pension funds, residents can contribute less for the same returns in the long run. What are your thoughts on that, and how would Alberta leaving CPP impact the fund?  

We certainly respect Alberta’s right to ask this question. What we’re focused on is performance. At 20.4 per cent [annual] return and 10.8 per cent 10-year return, I would say CPP Investments has a great product. And we have built an organization over the past 10, 15 years that is the envy of the world. We have returns that stack up and, in many cases, exceed almost every institutional investor in the world. Our focus here is delivering performance to our 20 million beneficiaries and contributors, including the three million that live in Alberta.