John Graham on Why CPP Investments is Taking the Long View on Investment Returns
Every July 1, Canadians from coast to coast take stock of what we’ve built together and the many bold actions that have shaped Canada into the resilient country it is today.
Take 1965, for example. This was a year that united us under one symbol, the national maple leaf flag. That year, we also helped secure our collective financial future through the creation of the Canada Pension Plan (CPP).
The CPP was a big, bold idea: Canadians would be safer and more secure in retirement if we worked together and looked after one another.
For 30 years, the CPP prospered and helped reduce seniors’ poverty. So, when demographic shifts began to threaten CPP sustainability, Canadians came together again to save the program.
In 1997, the federal government and participating provincial governments increased contribution rates and created CPP Investments to focus on the unique investment needs of the CPP Fund to help ensure the CPP would endure for generations.
That bold move continues to pay off. More than 25 years since those reforms, the CPP is one of the top performing national pension funds in the world and is financially sustainable for decades to come. That is a remarkable achievement when you think that without the reforms, the CPP was projected to be insolvent by 2015. Instead, it now stands at more than $800 billion.
Canadians work hard for the money they put into the CPP every month, and they expect those funds to be managed prudently so that the CPP will be there for them when they need it, for as long as they need it, adjusted for the cost of living through their retirement. As the investment manager of the CPP, we at CPP Investments know our critical responsibility is to help ensure that the promise is kept, and to deliver on Canadians’ expectations.
We have a clear mandate that guides our work: maximize returns without undue risk of loss, taking into account the factors that affect the funding of the CPP. The pursuit of higher investment returns must not compromise CPP Fund’s long-term sustainability. Resilient growth is the target, and on that we’ve been delivering, with the CPP Fund growing year-over-year in 26 of the last 27 years we’ve been investing it.
That risk-reward balance is what sets managing a national pension fund apart from managing an individual investment portfolio. If an individual makes a bad investment, it affects them and their family. Long-term impairment of the CPP Fund could affect millions of Canadians, their retirement income and potentially the contributions of workers still paying in. The asymmetry of that risk shapes everything we do.
We manage this risk with well-diversified portfolios built to deliver through cycles and over time. For the past few years, indices heavily concentrated in large U.S. technology companies have dominated the investment landscape and delivered returns beyond the reach of any diversified portfolio. We accept that short-term outcome because the CPP must remain resilient across many possible futures, not just the one that recently prevailed. We persist in building an enduring portfolio not with unrealistic expectation of immunity to volatility or geopolitics, but with a view to preserving the pension promise in all circumstances.
The recent success of heavily concentrated market indices has caused some people to ask whether passive market replication might be a better investing approach. But a national pension fund is not designed to deliver for a short period, it is managed for generations. Chasing such a level of concentration would, in our view, expose the CPP Fund to undue risk of loss. Our portfolio is built to help ensure retirement income or contribution rates will not be put at risk over the long run. We are not, and never will be, beholden to short-termism.
How do we know if we’re on track? The most important test is the financial health of the CPP Fund. The CPP Fund has been independently assessed to be financially sustainable for at least the next 75 years, largely due to investment returns. In fact, the CPP Fund’s funding position is so sound that federal and provincial governments have been able to propose a reduction in contribution rates, while maintaining benefits. That is the pension promise being delivered for Canadians.
Measuring performance against benchmarks is a useful tool. By isolating and assessing the various investment decisions that comprise the overall portfolio, benchmarks drive our ongoing efforts to improve and reallocate among those strategies. But, like quarterly earnings reports at public companies, benchmarks can become counterproductive when they are treated as the sole objective, rather than a useful indicator.
It’s human nature to focus on what happened most recently. But enduring institutions must remain grounded in their long-term purpose, even when that requires accepting short-term underperformance to alternatives that have worked in the moment but are not built to last. Throughout ups and downs in the market, our conviction about the kind of institution the CPP needs to be is unwavering.
Canadians were bold when they built the CPP together. They were bold when they made the tough choices needed to sustain it. Maintaining our focus on the long-term for Canada is how CPP Investments emulates that same boldness.
Go back to read my discussion with John Graham from a month ago when I covered CPP Investments' fiscal year 2026 results.
I asked him straight out if they will chase performance as stock markets keep making record highs led by a few large cap tech stocks, and he was crystal clear:
[...] the way we think about performance is that we're close to CAD $800 billion AUM now, and you have to think about what that actually means from how you think about various alternatives. But there is a desire in this industry to reduce performance to a single number, and it's a little bit more complicated than that.
What I do is look at absolute returns, because you need to grow the fund. Relative performance is an important accountability framework, and it also provides a lot of insight into how your various programs are performing, but you can never lose sight of the purpose of the organization, and what the organization was actually created to do, and we're trying to jointly solve those three things, but it doesn't mean we put equal weight on each one at all time.
And you mentioned the funding ratio. The funding ratio is at 40%. It's what allowed the feds and the provinces to cut the contribution rate by 40 basis points, which is real money back into the pockets of Canadians, which is ultimately why we're here.
So we jointly solve for absolute, relative and kind of the sustainability of the plan, but they aren't equally weighted. And in times like this, I'll say it to you, if somebody really outperformed their benchmark over the past year, I think you'd have to look hard at how they did it and what risk they took to do it.
Let's say CPP Investments could have put all its assets in Micron shares or even the VanEck Semiconductor ETF (SMH) and outperformed the Nasdaq and all other benchmarks over the past year. Would this have been a prudent thing to do when they're managing CAD$ 800 billion of assets Canadians are relying on to retire?
Of course not, and neither is passive investing when the concentration risk of equity indexes is at historic highs.
The downside risk is enormous if something goes wrong, and that is why the Fund prefers to remain highly diversified across sectors, geographies, and public and private markets.
Diversification doesn't guarantee they will not lose money in any given year; it simply means they will not lose more than they can tolerate without jeopardizing CPP's solvency.
But make no mistake, diversification comes at a cost. Relative performance versus an equity benchmark has been dismal over the last three years, but the managers of the CPP Fund remain focused on the long run and delivering sustainable returns that will not jeopardize the sustainability of the Canada Pension Plan.
"Well, Leo, it sounds to me like they're making excuses for missing the greatest boom ever driven by massive AI investment. Any passive index would have outperformed the CPP Fund -- and by extension, all other Maple 8 funds -- over the past three years."
Sure, but that's not the point. Most active managers are severely underperforming their equity benchmark in this environment, where you see parabolic moves in a handful of stocks; it doesn't mean the CPP Fund isn't managed well.
Also worth noting, while CPP Investments is underweight tech shares in public equities, the Fund is investing billions in data centers across the world with strategic partners and investing across the energy spectrum, playing the AI theme in private markets.
Critics abound; everyone thinks they know better than the managers of CPP Investments, but the reality is John Graham is right, now more than ever, pension funds need to be highly diversified.
What if stocks continue to melt up for the rest of the year and even next year?
So what? That doesn't mean large institutional pension funds should chase performance here.
Neither are they sovereign wealth funds, which have higher beta exposure and a different objective function.
People love to be armchair quarterbacks and criticize the performance or lack of performance, but do they really understand CPP Investments and its mission?
I doubt it.
And to be clear, we can have an open debate on whether the Canadian model still has what it takes to compete in a world dominated by private equity giants across all alternative asset classes, but we cannot argue that Canada's Maple 8 funds remain very important, widely respected funds.
Anyways, time to enjoy Canada Day festivities.
I wish all Canadians a beautiful Canada Day.
Below, Amanda Lang takes a ‘by the numbers’ look at Canadians’ expectations for retirement and then discusses the state of our national pension plan with John Graham, President & CEO of CPP Investments (May, 2026).
Also, Ted Seides sits down with John Graham to discuss the evolution of the Canadian model at CPP Investments (October, 2025).
lastly, the CNBC Investment Committee react to the market having its best quarter in 6 years. They debate what it means for the second half of the year.
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