A conversation with John Graham, CPP Investments' New CEO
In his first interview since becoming CEO, John Graham opens up about growth plans, strategy and pickleball.
On Friday nights, you’ll find John Graham and his wife playing pickleball near their home in Oakville. The newly named chief executive at one of the world’s largest asset managers, the $476-billion Canada Pension Plan Investment Board, took up the outdoor game – a hybrid of badminton and Ping-Pong – during the pandemic to stay nimble. In his first interview since becoming CEO, the 49year-old opened up on his plans for a fund responsible for 20 million Canadians’ retirement savings. It’s clear the new boss will push an 1,800-employee organization to be as light on its feet as he aspires to be on a pickleball court.
The CPPIB handed Mr. Graham the top job unexpectedly in late February. His predecessor, Mark Machin, resigned when the fund manager learned he received a COVID-19 vaccination early last month in the United Arab Emirates. Mr. Graham smiled when asked how his strategy for the CPPIB will differ from that of Mr. Machin, who ran the business for the past five years.
“I’ve always believed the saying that ‘strategy takes a back seat to execution.’ It’s all about execution,” Mr. Graham said, adding that he was part of the executive team that set strategy with Mr. Machin. The Ottawa native and former competitive squash player then told a story about how the CPPIB invested during the early days of the pandemic last spring, to highlight the nimble culture he wants to nurture.
First, a bit of background. The CPPIB is a relatively young Crown corporation – it was founded in 1997 – that has grown incredibly quickly. In just more than two decades, the organization evolved from a passive investor, buying stock and bond index funds, into an active global money manager, with nine offices in eight countries. The CPPIB now has deep expertise in numerous sectors, including private credit investments, where Mr. Graham built a 125-person team running a $42-billion portfolio prior to becoming CEO.
For leaders like Mr. Graham, the challenge with managing rapid growth is breaking down silos between divisions, to ensure employees share information and capital goes where it can earn the best return. Which brings us to how the CPPIB played the markets last March and April, as lenders came to grips with COVID-19.
In the early days of the pandemic, global credit markets froze. The CPPIB had money earmarked for sectors such as private credit – Mr. Graham’s group – but nowhere to put that money to work.
However, the team investing in public debt markets began pounding the table for what they saw as compelling opportunities to buy high-grade, triple-A rated credit securities at 70 cents on the dollar, a steep discount to their historic values.
The CPPIB quickly shifted billions of dollars into these fixed income investments, pulling capital out of other asset classes.
Mr. Graham said the fund made handsome returns in the weeks that followed, as credit markets bounced back and triple-A rated securities again traded near 100 cents on the dollar.
“We have the resources and the capability to be the best in the world, where we decide to be the best,” he said. “The nuance in that approach is to be the best, we all have to think and act as one fund, as one team that works together.”
Looking ahead, Mr. Graham said the CPPIB will need to be flexible as it commits to new investments, to avoid missteps at a time when public equity market valuations “are pretty rich and some geographies are pretty rich.” The CEO currently sees opportunities in sectors such as venture capital – where its San Francisco-based team invests alongside established VC funds – and in countries such as India.
The CPPIB overlays environmental, social and governance (ESG) criteria when it puts money to work, an approach honed over more than a decade.
Mr. Graham said investing with ESG themes is opening the CPPIB up to promising new sectors, including investments in battery storage and businesses that develop new, lightweight materials for aircraft and cars.
The Toronto-based fund manager’s ESG expertise could help the CPPIB win roles in the wave of infrastructure projects expected under U.S. President Joe Biden. “As an active global investor in infrastructure, we are keenly watching the broad spectrum of opportunities that arise in the U.S.,” he said.
Under its new leader, the CPPIB will also continue to invest in energy projects, including Alberta oil and gas businesses, and attempt to profit as these companies shift towards sustainable business models. “We think energy transition, including the shift to renewables, will be one of the biggest investment opportunities over the next 10 years,” Mr. Graham said. “We don’t believe in a blanket divestment approach. We’re active investors, and an approach of engagement will have more impact.”
Mr. Graham has been working from home for the past year – he did an interview across a colleague’s backyard picnic table – and says he is proud of CPPIB employees’ productivity during the pandemic. However, the new boss said he is looking forward to getting back to work in an office. He also said the CPPIB will continue to invest in high quality real estate, including office buildings. The fund manager currently invests 11 per cent of its portfolio in properties.
“Managing a remote work force presents challenges. It requires a formal, scheduled way of working, as opposed to the office,” Mr. Graham said. “I’ve always managed in part by walking around.” And lately, he’s been blowing off steam at the end of the week with a game of pickleball.
Earlier today, I had a chance to speak with CPP Investments' new CEO, John Graham.
Let me begin by thanking him for taking some time to call me and I also want to thank Michel Leduc for setting up this call.
I began by congratulating him on this appointment and by stating the obvious, namely, that I wish it happened under different circumstances, because the abrupt departure of Mark Machin took some of the limelight away from his nomination.
I also told him many people don't understand that CPP Investments is a very large, sophisticated organization and succession planning is always happening precisely because of unforeseen events.
Now, I realize people have their opinions about Mark Machin's departure. Claude Lamoureux, the former head of the Ontario Teachers’ Pension Plan, said Machin should not have had to leave, stating this to BNN Bloomberg:
“I think if he worked for another board and not CPPIB, I’m sure the decision would’ve been different,” Lamoureux said on BNN Bloomberg. “Yes, it’s mistake but it’s not a mistake to receive the penalty it received.”
He's not alone, others have shared similar sentiments, telling me there were legitimate personal reasons as to why Mark Machin flew to Dubai to be vaccinated and CPP Investments' Board "bungled it up" and it looks like "they were pressured by the federal government to act swiftly."
[Side note: If Claude Lamoureux is looking to be on the board of directors of a big pension fund, PSP Investments is looking for qualified candidates with his credentials and experience. He and anyone else interested can apply here.]
There may very well have been legitimate reasons as to why Mark Machin left to be vaccinated in Dubai but the optics were terrible and rightly or wrongly, CPP Investments' Board made a decision and there's really no point going over what happened because we simply are not privy to all the details.
I think we need to turn the page here. As I've stated plenty of times, Mark Machin is an incredible leader, one of a kind, and I would have liked to see him leave the organization under much better circumstances and on his own terms (he deserved better).
I would have also liked to have seen John Graham be appointed to the top job under very different circumstances because he too deserved a much better welcome, one that wasn't shrouded in conspiracy theories.
But in life "you can't always get what you want" as the Rolling Stones once noted, you need to deal with the cards your dealt with and move on.
Alright, back to my conversation with John Graham.
He began by telling me he's "very honored" to be assuming this important role.
I found him to be very nice, super smart, very focused and very empathetic, concerned about his employees' well-being during this pandemic (more on that below).
I began by asking him how someone with a doctorate in physical chemistry who spent almost a decade as a research scientist at Xerox land at CPP Investments to run the country's largest credit portfolio and now running the whole show?
"Very gradually" John replied, "I also earned an MBA and worked on strategy and allocation at Xerox before moving over to CPPIB to work in the Total Portfolio Management group which was then run by John Ilkiw," the former Senior Vice-President, Portfolio Design and Investment Research.
"Ed Cass (the first ever CIO at the organization) is now running that team" which looks to allocate capital among different asset classes and strategies.
"I then moved over into credit working with Mark Jenkins (who left in 2016 to become the Head of Global Credit at Carlyle) and learned quite a lot."
He took on leadership of Principal Credit Investments in 2016 as Managing Director and Global Head of the group.
Under Mark Machin, he was appointed Senior Managing Director, responsible for leading the Principal Credit Investments, Private Real Estate Debt and the Public Credit functions:
“For the first time in CPPIB’s history we are going to have all of our credit investors in one department,” says Graham. “Credit as an asset class is one of the largest globally and this change is going to provide the opportunity to have all of the experts together to build a global, diversified credit portfolio that maximizes value for CPPIB.”
The shift is crucial to support our strategic mandate to become an increasingly global investor and properly respond to the opening of credit markets in China, India and Latin America.
Graham notes those markets are less developed than credit markets in North America and Europe, and makes viewing credit through a broad lens increasingly important.
“We are going to have a mandate across the credit spectrum from investment grade to non-investment grade, and corporate to asset-backed lending,” he says. “It’s a broad mandate and we are currently developing a go-to-market strategy for new geographies, leveraging the breadth in a deliberate and methodical way.”
Graham adds this new approach to credit investing will differentiate CPPIB from organizations that house credit within regional departments, asset class groups (such as real estate), or separate it based investment grade and non-investment grade.
“When you invest in emerging markets, the lines between these asset classes – or these segments of the asset classes – are very blurred,” he says. “Having all investors within one department allows us to look beyond product labels and focus on the underlying risk/return trade-off.”
John noted that CPP Investments' credit team has "world class relationships" and with its acquisition of Antares, it has significantly scaled up its operations and delivered great returns.
Where the conversation got interesting was when I asked him about how he was going to make sure everyone looks at total fund performance and maintains a total fund focus.
Here, he began with his experience in the credit team stating the focus was always on "delivering the best returns in the credit portfolio" across 16 sub-strategies and across the spectrum of liquidity.
John said the same focus on "delivering great returns" now applies to the entire CPP Fund which basically means:
- Allocating capital across asset classes and strategies where opportunities lie (Ed Cass's job)
- Focus on security selection
- Leverage off existing relationships and diversify across geographies/ sectors/ strategies
He said CPP Investments is unlike single purpose funds which are basically "hammers trying to find nails".
Instead, the CPP Fund covers many geographies and strategies and as such is broad enough to capitalize on capital dislocations across the capital/ liquidity/ geographic spectrum.
I also asked John about how they were able to handle the pandemic.
Here, he separated it into business operations and HR issues.
In terms of operations, they were able to execute and "monetize on their existing relationships" to continue investing where opportunities lie.
In terms of its workforce, he said the focus is on "mental health" and making sure nobody is falling through the cracks.
He said Mary Sullivan, the Senior Managing Director & Chief Talent Officer, and her team are doing a great job implementing a multi faceted approach to make sure people aren't left behind, that managers check in regularly with everyone in their team and that employees are able to recharge if needed.
As far as he's personally concerned, John was very honest: "I'm lucky, my two kids are in high school now, learning online, others have been disproportionately impacted by the pandemic."
I think this is why he wants people back in the office once it's safe so those that are disproportionately impacted can feel better again as life resumes back to normal.
But he agrees with me that "the future of work" remains a big mystery and that some sort of hybrid model will prevail as those who have legitimate health issues might not go back to the office and others will want a better work-family balance.
"The key for me and my senior managers is to over-communicate now, making sure all our employees feel engaged" despite the pandemic.
Lastly, we spoke about changes to strategy and who will take over as head of credit.
He told me he was "one of the co-architects" of the current strategy they adopted and believes in its pillars so there won't be significant changes there and the focus will remain on execution.
As far as who will replace him as head of credit, he stated "TBD but there will be an announcement in six weeks once we announce our results."
I thank John Graham for taking the time to talk to me earlier, I enjoyed our conversation and look forward to talking to him again once fiscal 2021 results are released.
Below, CPP Investments' 2020 New Brunswick public meeting. I watched it all but if you're pressed for time, fast forward to minute 25 where Tara Perkins talks with John Graham.
Great short discussion, he covers ESG and risk management, the renewables portfolio and a geopolitical risks too.
I look forward to seeing more interviews with John and wish him and the entire team at CPP Investments health above all and many years of success executing on their long term strategy.
I wish everyone a nice Catholic Easter, I will be back Monday or Tuesday.