Thursday, May 19, 2016

Why Is Mark Wiseman Leaving CPPIB?

Barbara Shecter of the National Post reports, CPP investment chief Mark Wiseman to make surprise exit after nearly four years at helm:
The executive who oversees investments on behalf of Canada’s largest pension fund is leaving in a surprise move that is in marked contrast to the “orderly long-term succession plan” of his predecessor.

Sources told the National Post that Mark Wiseman is departing soon from the Canada Pension Plan Investment Board, where he has been chief executive for almost four years.

The CPPIB announced in a statement Thursday morning that Mark Machin, currently CPPIB’s Senior Managing Director & Head of International, has been appointed president and Chief Executive Officer, effective June 13.

Wiseman, 45, took over from David Denison in June of 2012, a handover that had been planned for months.

Denison spent seven years at CPPIB, which invests funds not needed to pay current pensioners, before retiring the year he turned 60.

The latest transition in leadership of the investment management organization behind the Canada Pension Plan, the country’s national pension scheme, is expected to be unveiled Thursday along with annual financial results.

“There are a bunch of moving parts around the yearend,” one source told the Post.

The source suggested Wiseman is leaving for another position, but declined to say where he is headed, or who will replace him at the fund, which had $282.6 billion under management at the end of December.

Another source later suggested Wiseman could remain at the pension for a period of time after announcing his planned departure. Wiseman could not be reached for comment, and company officials did not respond to a request for comment.

While the two sources characterized his departure as amicable, and said there was no suggestion of concern in Wiseman’s leadership, another familiar with CPPIB’s inner workings said there was friction on issues including his leadership style and travel.

Wiseman’s extensive travel outside Canada might be explained by the rapid expansion of the fund’s overseas operations on his watch — offices were opened in Sao Paulo, Mumbai and New York. But the source said some questioned whether it was only the CPP’s interests that were being promoted.

Described by some familiar with his style as smart and strong-willed, Wiseman has been associated with CPPIB’s international investments since before he ascended to the top job in 2012.

Before he was selected as CEO, he held the position of executive vice-president, investments, and was responsible for the fund’s overall global investment programs, and some aspects of long-term strategy.

Wiseman joined CPPIB in 2005, landing at what would eventually grow to be Canada’s largest pension after working in a senior role at the Ontario Teachers’ Pension Plan.

When he was selected to take over as CEO, it followed a long succession process. Denison, his predecessor, triggered the process in June of 2009 when he informed CPPIB’s that he intended to retire in three years.
Where is Mark Wiseman heading? Marketwired reports, BlackRock Hires Mark Wiseman as a Senior Investment Leader:
BlackRock, Inc. (NYSE:BLK) has named Mark Wiseman as incoming Senior Managing Director and a member of the Global Executive Committee (GEC). Wiseman will become Head of BlackRock's Global Active Equity business and will become Chairman of the BlackRock Global Investment Committee, the investment sub-committee of the GEC. He will also help support BlackRock Alternative Investors. Wiseman will report to Robert S. Kapito, President of BlackRock, and will join the firm in early September.

Wiseman currently serves as President & Chief Executive Officer of CPP Investment Board, which manages approximately C$280 billion on behalf of the Canada Pension Plan and its 19 million contributors and beneficiaries.

He will become Chairman of the Global Investment Committee, the GEC sub-committee that provides governance and oversight of investment performance; drives collaboration, including leveraging technology, across investment platforms; builds alignment on business growth and development plans; and facilitates product development and evolution.

As Head of Global Active Equity, Wiseman will oversee more than 350 portfolio management and business professionals across the Americas, EMEA, and Asia Pacific regions, responsible for investing over $275 billion in equity-based investment strategies. Global Active Equity includes Fundamental Active Equity ($205 billion) and Scientific Active Equity ($70 billion).

He also will become Chairman of BlackRock Alternative Investors (BAI), to support and partner with BAI Co-Heads Mark McCombe and Matt Botein. McCombe and Botein will continue to lead BAI and run the business day-to-day, reporting to BlackRock President Robert Kapito. BlackRock's alternatives platform spans hedge funds, private equity, real assets, private credit, commodities, and alternative solutions. Wiseman will work closely with McCombe and Botein in developing investment strategies, deepening the firm's client relationships and sourcing investment opportunities for BAI. In addition to leading BAI, McCombe continues to serve as Senior Managing Director and Global Head of BlackRock's Institutional Client Business.

Laurence D. Fink, Chairman and Chief Executive Officer said, "We are thrilled to be bringing an executive of Mark's stature into BlackRock. He is not only a best-in-class investor but also a great leader of investors. He has deep experience in both public and private capital markets globally - having worked with and driven strong investment results for some of the biggest and most sophisticated pools of investment capital in the world. We are excited about the contributions that Mark can make across our entire investment platform."

Robert Kapito, President, added, "Having undertaken a multi-year effort to rebuild BlackRock's active equity capabilities, we are pleased with our progress and believe Mark can help us continue to drive meaningful results for clients. As we further enhance investment performance and link our fundamental and scientific active equity investment strategies, Mark is perfectly suited to lead this effort. He will also be able to make substantial contributions to our alternatives platform and across the firm. I look forward to partnering with him and the rest of our investment leadership in delivering compelling investment solutions to our clients that draw on the full depth and breadth of BlackRock's capabilities."

Biographical Information

Mr. Wiseman assumed the role of President & CEO of CPP Investment Board in 2012 and has been responsible for leading all investment and non-investment activities. He first joined CPPIB in 2005 as the organization's Senior Vice-President, Private Investments. He was later named Executive Vice-President, Investments, responsible for managing all of the investment activities of CPPIB - Public Market Investments, Private Investments and Real Estate Investments.

Prior to joining CPPIB, Mr. Wiseman was responsible for the private equity fund and co-investment program at the Ontario Teachers' Pension Plan. Previously, he was an officer with Harrowston Inc., a publicly traded Canadian merchant bank and a lawyer with Sullivan & Cromwell, practicing in New York and Paris. He also served as a law clerk to Madam Justice Beverley McLachlin at the Supreme Court of Canada.

Born in Niagara Falls, Ontario, Mr. Wiseman holds a BA from Queen's University and a law degree and MBA from the University of Toronto. He was also a Fulbright Scholar at Yale University, where he obtained a masters degree in law and is a certified member of the Canadian Institute of Corporate Directors.

Mr. Wiseman serves on the Board of several non-profit organizations, including the Sinai Health System and the Canadian Coalition for Good Governance. He was the 2015 Campaign Chair for the United Way of Toronto and York Region and was recently appointed to the Canadian Finance Minister's Economic Growth Council.
CPPIB's Board just put out this press release announcing they appointed Mark Machin to the position of President & CEO:
The Board of Directors of Canada Pension Plan Investment Board (CPPIB) today announced that Mark Machin, currently CPPIB’s Senior Managing Director & Head of International, has been appointed President & Chief Executive Officer, effective June 13, 2016. Current President & Chief Executive Officer Mark Wiseman advised the Board early this year of his plans to leave CPPIB to pursue a senior leadership role with BlackRock.
“Mark Machin has been instrumental in helping to shape and execute CPPIB’s strategy over the last four years, consistently demonstrating deep knowledge of our business, understanding of global opportunities and a commitment to our unique mandate and culture,” said Heather Munroe-Blum, Chairperson of CPPIB’s Board of Directors. “There is an impressive depth of senior leadership talent within CPPIB, and multiple qualified internal candidates had been identified in the context of our ongoing succession development processes. Following a thorough process, the Board unanimously agreed that Mark Machin was the ideal choice to lead the organization through the next chapter of its mandate.”

Machin joined CPPIB in March 2012 and has been responsible for the organization’s international investment activities, managing global advisory relationships, and leading the organization internationally. Prior to joining CPPIB, he had a 20-year career at Goldman Sachs, where most recently he was Vice Chairman of Asia ex-Japan, based in Beijing. In addition to having run Goldman Sachs’ Investment Banking Division in Asia ex-Japan for six years, he previously ran that organization’s Capital Markets and Financing businesses in Asia. Machin was a member of Goldman Sachs’ Asia Management Committee and the Firmwide Capital Committee.

“It is a remarkable honour to have been selected by the Board of Directors to lead this outstanding institution,” said Machin. “I am excited about the direction our senior management team is taking the business. I am particularly pleased to assume the helm at a time when CPPIB is playing an increasingly important role globally, investing and managing the portfolio to ensure the long-term growth and sustainability of the CPP Fund. I am mindful of the fact that Canadians trust CPPIB with their money, and are counting on us to help ensure that it’s there for them in retirement. This is a major responsibility, one that I assume with respect and great commitment.”

Machin’s appointment comes at a time when the percentage of the CPP Fund that is invested outside of Canada has risen to approximately 81%. This geographic diversification is one of the factors supporting the long-term sustainability of the Fund.

“It is likely in the foreseeable future that the CPP Fund will remain overweight in Canada, which represents less than 3% of the global economy,” Munroe-Blum said. “There are approximately $53 billion worth of Canadian investments in the portfolio.”

Beyond the portfolio, the CPP Fund is by its nature heavily tied to Canada’s fortunes. Major factors impacting its sustainability, such as fertility rates, life expectancy, immigration and labour force participation, are all based on what occurs here at home. As a result, CPPIB has long recognized that it is prudent to diversify by investing a sizable portion of the Fund outside of the country for the benefit of Canadian beneficiaries, and we will continue to refine the portfolio’s geographic mix in keeping with our long-term outlook. CPPIB’s international strategy bloomed under Mark Wiseman’s leadership, and Mark Machin is ideally suited to leading this continued evolution of the Fund,” said Munroe-Blum.

CPPIB is also releasing its fiscal 2016 financial results today. It has now been one decade since the organization adopted its active management strategy, making it an ideal time to reflect on the significant accomplishments that have been made to date.

“While Mark Wiseman leaves big shoes to fill, the Board of Directors is confident that Mark Machin will do so in an impressive fashion,” Munroe-Blum added. “In his time with the organization, Mark Machin has earned the trust, respect and admiration of employees and partners alike.”

Mark Wiseman has been with CPPIB for 11 years. Since becoming President & CEO on July 1, 2012, he spearheaded the development of a multi-year vision to better align the organization’s business operations with its exceptionally long horizon by evolving CPPIB’s investment strategy, organizational design, talent strategy, global expansion and information systems.

“Leaving CPPIB was an extremely difficult decision and one that I deliberated over very carefully,” said Wiseman. “CPPIB is an exceptional institution on a long, strong path forward. I have every confidence in the senior management team and will watch with pride the successful delivery of CPPIB’s long-term global strategy. The opportunity to serve CPPIB for over a decade has been a great privilege. It will remain one of the greatest highlights of my career.”

Wiseman joined CPPIB in 2005 as Senior Vice-President of Private Investments, and was named as Executive Vice-President of Investments in 2010, responsible for all of CPPIB’s investment activities. As of the date of the transition to Mark Machin’s leadership, on June 13, 2016, Mark Wiseman will serve as a Senior Advisor to the Board of Directors until September 5, 2016 to support a seamless transition. He will cede all duties as President & CEO and no longer be involved in the business operations of the organization.

“My focus will now be working with the Board to support a smooth and successful transition, but I don’t expect that to be a difficult task,” Wiseman said. “Having worked closely with Mark Machin for several years, I have complete confidence in his ability to assume this role without missing a beat. I believe that Mark has all the skills to lead CPPIB through the next chapter of its evolution. His international experience, investment acumen and commitment to the organization make him an unrivalled candidate to lead CPPIB at this time. And, I know that he will be supported by the exceptional team of senior leaders at CPPIB.”

During the period in which Mark Wiseman was President & CEO of CPPIB, the organization’s assets have increased by more than $100 billion and it has continued its international expansion, including the opening of offices in important long-term markets such as São Paulo and Mumbai.

“Mark Wiseman applied his investment expertise and leadership skills to significantly advance our successful active management strategy and global competitiveness while charting an ambitious vision for CPPIB,” said Munroe-Blum. “His focus on further developing CPPIB’s capabilities positioned our teams to prudently undertake the largest and most complex transactions in the world, and to create value over the coming decades. The Board is very grateful for Mark’s long and dedicated contribution to executing the CPPIB mandate. We are proud of his accomplishments over 11 years at CPPIB and we wish him continued success in his new role at BlackRock.”

Machin’s successor(s) in the roles of Senior Managing Director & Head of International and Head of Asia will be announced in due course, and he will maintain those responsibilities until that time.
A friend of mine texted me the news this morning. I was shocked and surprised, and to be very frank, a bit sad Mark Wiseman is leaving CPPIB where he was doing an outstanding job and I thought he would stay a minimum of ten or twelve years as its leader (he did stay 11 years in total at CPPIB and has many more good years ahead of him).

CPPIB's loss is Blackrock's gain. And what a huge gain it is for Blackrock on so many levels. They just hired one of the best asset managers in the world and an unbelievable leader. Mark is one of the nicest, smartest and hardest working leaders I ever had the pleasure of meeting and interacting with and I'm sure this wasn't an easy decision for him.

So why did he depart CPPIB? I'm not going to speculate but what the public doesn't understand or appreciate is how at the CEO level, with that much stress and responsibility, it's a very tough and demanding job with a totally insane travel schedule. Mark is known to be a creature of habit with a taste for the new and maybe he just decided it's now or never to make a jump back into the private sector and he'd be crazy to pass up the opportunity to work at the world's largest asset manager, Blackrock.

At Blackrock, he will be joining his partner of more than 23 years, Marcia Moffat, whom he has two boys with. Ms. Moffat was hired by Blackrock last summer to head up the Canadian business (no worries, she won't be reporting to Mark as her business is unrelated to his and she is extremely qualified and very capable in fulfilling her important role there).

Was compensation a factor in Mark's decision? Maybe but Mark never struck me as a money hungry type of guy and I've seen my fair share of those in the financial services industry. Also, keep in mind, the leaders at Canada's large pensions get compensated extremely well, some think too well given they have captive clients, but the truth is they're delivering the long-term results to justify that compensation.

However, it's no secret, compensation is better in the private sector. Larry Fink, Blackrock's CEO, was awarded $25.8 million in compensation in 2015, compared with $23.9 million in 2014, based on a calculation of his pay according to U.S. Securities and Exchange Commission guidelines.

So, I have no doubt that Mark's compensation will be higher at Blackrock, especially if he delivers which he will based on his track record, and you know what? Good for him, he deserves it after all the hard work he put in at CPPIB running a mammoth fund.

In my last email exchange with Mark, he praised me for my comment questioning whether Canadians are on getting less bang for their CPP buck. He really liked that comment a lot and told me I will be pleasantly surprised with CPPIB's fiscal year 2016 results.

That's good news and I will continue to defend the CPPIB and all of Canada's large pensions from the likes of the Fraser Institute and Andrew Coyne who once again shows me he just doesn't get it when he writes CPP board can’t escape blame for fund’s bloated state:
Whatever may have prompted Mark Wiseman’s sudden departure from the CPP Investment Board after less than four years as CEO, it is unlikely his successor will do much to change its basic direction.

Whatever the board’s discontent with Wiseman, it was the board that put him there. And whatever the president’s personal contribution to the public pension fund’s escalating costs, they are a tiny part of the overall problem — as Thursday’s annual report will doubtless show.

In all likelihood, it will confirm a trend that has been gathering momentum for the past decade: more staff, higher pay, rising operating expenses, and all for no appreciable payoff for the fund’s 18 million “members,” the Canadian workers who are required to kick into it every year.

So whatever Wiseman’s deficiencies, the board can hardly escape its own share of the blame for the fund’s conspicuously bloated state. The near 25-fold increase in costs over the past 10 years is not, after all, the result of a mere absence of effective spending controls, but reflects a fundamental shift in the fund’s investment strategy, undertaken with the board’s approval in 2006.

Before then, the fund’s mandate had been to invest surplus revenues “passively,” that is in a broad range of stocks and bonds designed to track the relevant indexes. (This was after the reforms of the late 1990s released the CPP from its original obligation to lend any surplus to the provinces.) Now, it would try to beat the market, via so-called active management.

In pursuit of higher returns, the fund has plunged into an increasingly esoteric, and risky, range of private investments, from shopping malls to drug patents to toll roads. Offices have been opened not only in London and New York, but Hong Kong, Luxembourg, Sao Paolo and Mumbai.

The results of this experiment are clear, at least to anyone who wades through the board’s opaque, ever-lengthening annual reports. The number of employees, from just five at the fund’s inception in 1999, has grown to roughly 1,200. Where total compensation for the CPPIB’s founding president, John McNaughton, was limited to just over $300,000, Wiseman pulled in 12 times as much last year. Indeed, the fund’s top five executives received an average of more than $3.4 million apiece.

Overall, operating costs have risen from $3 million in 2000 to $54 million in 2006 to $803 million in 2015. The growth in external management fees has been even more explosive: from $36 million in 2006 to $1.25 billion in 2015. Throw in commissions and transactions, and total costs added up to more than $2.3 billion in 2015. It would not be surprising to find they exceeded $3 billion in the year just ended, or roughly one per cent of the fund’s assets. By comparison, the management expense ratio on a large, passively-managed exchange-traded fund (ETF) can be less than 0.1 per cent.

And the results? From fiscal 2000 through 2006, the fund earned an average return net of expenses of 7.5 per cent. Since 2007 its average net return has been 7.2 per cent. Of course, markets have been much rockier in recent years, so that’s arguably not a fair comparison.

Compare, rather, the fund’s actual return to its chosen “reference portfolio,” measuring how it might have performed had it simply invested in the indexes. In the nine years since the active-management strategy was adopted, the fund beat its benchmark five times, losing to it in four. On average, net returns have exceeded those of the reference portfolio by just three-tenths of a percentage point.

The benchmark, what is more, is a fraud. The reference portfolio the fund so narrowly outperformed is made up of just 65 per cent equities, versus 72 per cent for the actual portfolio. Moreover, it consists entirely of publicly traded stocks and bonds, whereas 41 per cent of the fund’s actual portfolio is now invested privately, in highly illiquid assets like real estate and infrastructure.

The CPP’s actual portfolio, in other words, is significantly riskier than its benchmark. To justify that risk, the fund should be earning a considerably higher return than the reference portfolio. Instead, it has barely kept pace with it. (In belated recognition of this, the board has since altered the reference portfolio to 85 per cent global equities, as a proxy for the extra risk of investing in private markets.)

That’s not a criticism of the fund’s managers, or their particular choice of investments. It’s an indictment of the whole strategy. The inability of active managers to consistently beat the market is one of the most well-established principles of modern portfolio theory. That doesn’t stop lots of private investment managers from trying. But private managers are not responsible for the savings of 18 million captive beneficiaries.

The board, then, is at least as much a part of the problem as management. The CEO may be accountable to the board. But the board is effectively accountable to no one. Indeed, that is more or less by design: to protect the CPP from political interference. The CPP is a creature not of the federal or provincial governments, but of both; board members are appointed, not by one government, but 11.

The CPP has the same guaranteed inflow of funds from CPP levies, in excess of $4.5 billion annually, whatever its performance. Its fantastically compensated managers and directors need not fear that investors will cash in their shares if they are dissatisfied. Neither are they at any risk of being turfed in a takeover, or of seeing their share price plummet.

All they are obliged to do is to issue another unreadable annual report, to the bafflement of the media and the indifference of the public.
I read this drivel and thought to myself Coyne really doesn't understand a thing about CPPIB's governance, why it was created and how it has evolved over the years as its assets under management exploded up.

The problem is Coyne isn't a pension expert and it shows. He doesn't understand CPPIB's long-term investment strategy to diversify into private markets across the world, how its Reference Portfolio is carefully constructed to reflect all risks and how it's one of the hardest to beat in the pension industry, how the board of directors are nominated and what their role is to supervise management while ensuring the Fund operates at arm's length from the government, and more importantly, how CPPIB has consistently added huge value-added over the years relative to its Reference Portfolio, especially during bear markets.

Mark Wiseman has always told me: "We will underperform when stock and bond markets are soaring but outperform when there are bear markets." Moreover, when there is a crisis, CPPIB invests opportunistically to capitalize on its structural advantages, namely, huge cash flows, internal expertise and a very long investment horizon. This is why over a very long period, CPPIB has delivered great returns, far outperforming any indexed balanced fund or mutual fund on a risk-adjusted basis.

All this is lost on Andrew Coyne. Just like the Fraser Institute, his article focuses on costs but ignores the reality of why CPPIB's operating costs are necessarily higher because of its global scope and huge size, and the fact you need to pay people properly for certain skill sets to manage assets internally or else you'll end up like US public pensions, farming the bulk of assets to external managers and paying outrageous fees for paltry returns.

Nor does Coyne understand the macro environment and why now more than ever, we need to enhance the CPP and bolster the rest of Canada's large defined-benefit plans to make sure we cover the retirement needs of many Canadians that are going to outlive their savngs and retire in poverty.

Andrew Coyne is a fun guy to watch when he discusses politics but when he writes rubbish on CPPIB and pensions, I tune off because he literally demonstrates how hopelessly ignorant he truly is.

I implore the Board of Directors at CPPIB to address Andrew Coyne's article head on, it truly infuriates me and it needs to be publicly addressed in much more detail by CPPIB.

Let me wrap this comment up by wishing Mark Machin all the best it his new role heading up CPPIB. I have every confidence that he too will do an outstanding job and I hope to get to meet him one day and continue the dialogue covering CPPIB's operations.

As for Mark Wiseman, I wish him nothing but health, happiness and lots of success over at Blackrock. I remember the first time we met at the offices of Ontario Teachers' when he was running their private equity fund investments and co-investments. I was with Derek Murphy back then and Derek told me: "He's a very smart guy, they're grooming him to be the next CEO at Teachers."

Well, it turned out that he left Ontario Teachers to join CPPIB and Ron Mock took over the helm there. Ron too has nothing but good things to say about Mark Wiseman, always somewhat jokingly, somewhat seriously telling me "he's a very wise man".

He is a very wise man and a gentleman, a truly decent guy which I had the pleasure of meeting a couple of times at CPPIB. I'll never forget our last meeting where he told me: "We invest directly in infrastructure but in private equity we still do a lot of fund and co-investments. If I could afford to hire David Bonderman, I would, but I can't so I invest with him and others through funds."

I like Mark Wiseman a lot and it saddens me that he's leaving CPPIB but I understand the pressures of running a large Canadian public pension fund, I saw it firsthand with Gordon Fyfe at PSP. Gordon once told me: "You have one boss, I have ten board members to answer to and it's not always fun". It certainly isn't and sometimes it gets very tedious and downright nerve-racking.

Anyways, Mark will now be working for Larry Fink over at Blackrock and I like him a lot too. Why? Because Larry Fink understands America's pension crisis and the need to think long-term to address many structural ills plaguing the US and global economy. He also tells it like it is and isn't scared to ruffle feathers which makes him fun to listen to.

Below, Larry Fink, BlackRock chairman & CEO, weighs in on the shortfall in savings for many Americans as they head into retirement. He nails it: "This is the first time where we have Americans aging in a DC world, not a DB world and they have an inadequacy of savings" and many of them are doomed to pension poverty.

Also, in an era of growing complexity and uncertainty, how can business leaders make decisions for the long-term? Larry Fink took part in a panel discussion with Mark Wiseman at Davos on the long-term imperative earlier this year. Great discussion which you should take the time to listen to.

Update: Make sure you read my follow-up comment going over CPPIB's Fiscal 2016 results. After reading these comments, you'll understand why Mark Wiseman is leaving CPPIB and why the critics are out to lunch when they question CPPIB's performance and compensation.


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