CPP Investments Looks Global But Has No Immediate Plans To Invest In Ukraine Reconstruction: CEO

Canada’s largest pension fund manager says it will continue to seek investment opportunities around the world, but has no current plans to help with Ukraine’s eventual reconstruction once the war with Russia ends.

“We never close the door on an investment opportunity, but we would look at it as an investment opportunity again,” CPP Investments CEO John Graham said in an interview Thursday.

Before taking that step, he would first spend some time learning about the country because he is not familiar with its “invertible universe”.

He said the institution’s sole mandate is to maximize returns without undue risk of loss. About 16 percent of its investments are in Canada, despite the country accounting for three percent of the world economy.

“The way we’ve thought about our global expansion is that we’ve tried to be very surgical on the countries that we invest in because we want to invest where we see opportunities.”

That mostly means putting your money in big economies where you have some experience, including China, India and Brazil.

Graham said investing globally is in the best interest of its 21 million contributors and beneficiaries.

The institution periodically analyzes possible geopolitical events to ensure that it has a resilient portfolio that can withstand different shocks. A possible invasion of Taiwan by China, which is top of mind for many these days, is one such scenario.

Unlike many Canadian companies, CPP did not have to divest Russia for its invasion of Ukraine because it does not have such investments within its active portfolio, Graham told a business audience after a speech at a luncheon at the Canadian Club in Toronto. .

“The Russian invasion of Ukraine was a bit of a game changer for people,” he said.

Responding to a question from an audience member, Graham said he does not support divestment from the oil and gas sector altogether even though he began incorporating the risks and opportunities of climate change into his portfolio more than a decade ago.

“We think it’s counterproductive to achieving net zero,” he said.

“This will require a lot of capital and if the goal is really to remove carbon from the economy, then the sale doesn’t do it.”

CPP has committed to net-zero operations by March 31, 2023 and net-zero investment portfolio by 2050.

Previously, Graham said that active management will overcome the current challenges of slowing economic growth, elevated inflation and weakened equity markets.

Simply exposing capital to markets has been a “winning strategy” for the past decade amid rising valuations.

But rising geopolitical tensions, supply chain disruptions, lockdowns and weakened public markets now make it an increasingly challenging environment for investors.

“This bleak outlook may seem overwhelming, but in many ways, CPP Investments was built for times like this,” he said in his speech.

“We were specifically designed to create very long-term value and to be resilient in the face of far-reaching economic and market conditions.”

Graham said he expects inflation to remain elevated in the near term in large part because supply-side problems have not been resolved. He pointed to the pandemic lockdowns, national security, and the war in Ukraine that disrupt the delivery of essential materials that fuel the global economy.

The key is active management and diversification to mitigate risk and provide a more resilient portfolio. That means investing in a wide range of asset classes and growth-oriented companies that behave differently throughout the business cycle.

“It’s hard to get this benefit if you’re primarily a purely passive investor,” he said.

Graham said the institution’s flexibility doesn’t mean it’s immune to market volatility or has a tough year or two.

The pension fund delivered a 6.8 percent return last year at $539 billion. Its 10-year yield was 10.8 percent.

Graham said that CPP is not trying to call the bottom of the markets, but rather remains invested and continues to look for quality assets.

However, he said closing deals is more challenging because there is a big gap between buyers and sellers on price.

“We’re also seeing less competition for high-quality assets as short-term money is on the sidelines.”

He suggested that retail investors can handle today’s economic challenges by following suit and thinking long-term.

“Invest. Don’t speculate,” Graham said. “If you find yourself churning your portfolio, you should probably rethink portfolio construction.”

Leave a Reply

Your email address will not be published.