CPP Investments' CEO on Maintaining CPP's Sustainability for Generations

Earlier today, CPP Investments' CEO, John Graham, delivered his first public speech and spoke with BNN Bloomberg's Amanda Lang at a Canadian Club Toronto virtual event which I embedded  at the end of this post.

John spoke about why they're embracing the hybrid model, why he's a big believer in diversification, why they take climate change seriously but are not divesting from fossil fuels, why venture capital offers exciting opportunities, why they still like logistics, are beefing up risk management and a lot more. 

He even answered some poignant questions on diversity and inclusion at CPP Investments (my only comment is we need to move past just gender diversity to a broader focus on diversity, which Amanda noted, much to her credit). 

I'm going to let you watch that discussion below but I did ask John if he can share his speech with me, which he graciously did (checked against delivery; added emphasis is mine):

John Graham on Helping to Maintain the Sustainability of the Canada Pension Plan for Generations  

Good morning, everyone. And thank you to the Canadian Club for inviting me to speak today. 

Four months ago, I was honoured to become the President & CEO of CPP Investments,an organization that plays a vital role in the lives of Canadians.

It’s what drew me to CPP Investments over 13 years ago, pivoting from a career as a research scientist. 

The idea that I could play a part in contributing to the financial security of millions of Canadians was very appealing.

At the time, we were a $100 billion dollar organization.

Fast forward to today, we are reaching half a trillion –

Despite the incredible challenges of the global pandemic. 

This morning I’ll touch on three topics: CPP Investments performance, our current approach to global markets, and finally, the pressing issue of climate change.

Let me start with our performance

Certainly 2020 felt like a roller-coaster for all of us here–and not in a good way. 

In March of last year,the markets dived, businesses shuttered,many of our contributors stopped working ,and our global team went from nine office to 1900 home offices literally overnight.

As the world moved through the early uncertainty, bright spots began to emerge. 

The economic stimulus provided by governments and central banks was unparalleled, and the markets stabilized and ultimately rebounded.

The lightning-fast vaccine development was extraordinary, especially from my perspective as an ex-research scientist.

We are pleased with our meaningful investment in Moderna, made mere months before anyone heard of coronavirus. 

Yet, despite all of the volatility, our fiscal 2021 was great news for millions of Canadians. We reported our strongest-ever annual return of 20.4%. 

I’m exceptionally proud of how our global team delivered this year,overcoming the immense mental and physical challenges of the global pandemic. 

We didn’t pause. We ran faster.

And the CPP Fund reached almost half a trillion dollars, about 7 years earlier than originally projected. 

But one-year results, good or bad, are not our immediate priority.

We remain focused on long-term performance. We keep looking ahead for generations to come because our investments must deliver growth far into the future, including for younger workers beginning to contribute now. 

Our active management strategy continues to deliver strong long-term results. A net return of 10.8% over ten years. 

I’m proud to say this performance has not gone unnoticed. 

Last month, the Sovereign Wealth Fund Institute ranked us as the top performing fund globally as measured by compound annual growth rate. 

To quote their 2021 report: 

“Canada has only the world’s ninth largest economy, but its pension system has proven to be one of the, if not THE, most advanced.”

The Fund’s growth and superior returns over the long term, reflect a commitment to excellence that our team brings to work every day. 

Our purpose-driven culture –helping Canadians feel secure in retirement –it’s this purpose that fuels our track record of success. 

We’ve built a globally competitive investment powerhouse, with an experienced team who bring deep knowledge and expertise across a wide breadth of asset classes and investment strategies. 

Now let me shift to our outlook

As we move to a post-COVID world, our long-term strategy remains our guide as we continue to carefully weigh the impacts of the pandemic. 

On a “micro” level, we see certain trends that accelerated during COVID continuing to persist beyond. 

Remote work in some form is here to stay. And with it, the challenge of building systems and services to support a distributed work environment. 

New software, new workplace technologies 

New systems

And new services

These are all investment opportunities for us.

Another trend is the accelerated expansion of e-commerce and impacts on the logistic sector. 

Last year, the Canadian economy shrunk by about 5% but the digital sector grew by 3.5%.

This has triggered the exponential growth of cloud computing, a need for IT hubs to become location-agnostic, and increased demand for high-quality logistics companies.

These are just a few multi-asset class, multi-jurisdictional trends that we’re focused on understanding and investing in across our global portfolio. 

Now let’s shift to a macro view. 

As the global pandemic recedes, big challenges and questions remain for the global economy. 

How and when borders are opened, the ongoing impact of monetary and fiscal policy, how different jurisdictions will approach containment of the virus...these are all things we incorporate into our portfolio construction. 

But whether we are looking at the micro or macro view, what is increasingly critical right now to CPP Investments’ success -and ultimately our contributors’ and beneficiaries’ success –is the breadth of our strategies in this environment. 

The global capabilities we have built can’t be easily replicated. Our ‘One Fund’ approach is already reaping benefits,as we leverage our knowledge internally across 24 distinct investment programs. 

It’s the deep One Fund approach, that we are now bringing to bear on one of the most pressing challenges facing the planet today. 

Climate change and the global economy’s path to net-zero greenhouse gas emissions. 

We’re seeing progressively ambitious climate policies globally, innovation and new technology impacting old and new economies, and changes in consumer and corporate behaviour.

Against that backdrop,our aim is to capture the opportunities and manage the risks that arise as GHG emissions are gradually removed from the real economy. 

We see a crucial role for CPP Investments. 

In funding and supporting this long-term and complex transition pathways. 

All in the interest of maximizing returns over generations. 

We require companies in our portfolio, both public and private to have viable energy transition strategies –and we’re holding them to account through our voting and influence. 

We believe that using blanket divestment will impede the world’s ability to transition.

It is critical that we continue to play a role in lowering emissions across the energy spectrum through engagement and not blanket divestment.

As an example, at the halfway mark of this years’ proxy season, we voted against 44 directors whose companies we determined did not show an appropriate plan to address climate change. 

Looking ahead, we expect to be a major investor in the energy transition. 

Earlier this year, we established a Sustainable Energies Group to build on existing strength in renewables, conventional energy and innovation. 

The Group already has more than $20 billion in assets under management.

Our strategy will evolve as transition pathways emerge and global standards for net-zero emissions materialize.

Climate change is the defining challenge of the 21st century. CPP Investments will be a key investor in the world’s path to net zero. 

As we emerge from the pandemic, the mood in Canada and abroad has turned from anxiety to confidence. 

But we are also heading into unchartered territory, and as a global investor we need to stay alert.

CPP Investments is keeping a close watch on inflation expectations, on fiscal and monetary policy responses that have become less predictable, on real growth expectations that diverge dramatically across the globe,on currency volatility, and a less stable exchange rate regime.

Yet, amidst all this uncertainty, 20 million Canadians can take comfort in the knowledge that the CPP is healthy and growing and sustainable for the next 75 years. 

My thanks to everyone who joined us virtually today.And Amanda, I look forward to our discussion.

Great remarks, we are definitely lucky to have an organization like CPP Investments managing the assets of the Canada Pension Plan and I have no doubt John Graham and his senior management team are doing an outstanding job.

On that note, however, John Graham today announced that after 11 years with CPP Investments, Shane Feeney, Senior Managing Director & Global Head of Private Equity, will be leaving the organization to assume a leadership role at Northleaf Capital Partners:

“I want to thank Shane for his tremendous contribution to CPP Investments. For the past 11 years, Shane has had a significant impact on growing our Private Equity program to be a key part of our diversified investment strategy, and one that is recognized as a leader globally,” said Mr. Graham. “A friend and colleague for many years, his contributions beyond leading one of our most successful investment programs will be missed and we wish him all the best in his new role.”

CPP Investments is currently conducting a thorough assessment of potential candidates in accordance with its well-developed succession processes. Appointments will be made in due course, with a view to a seamless transition and appointing an individual with leadership capabilities aligned with our ambitions as an organization.

Shane Feeney has been a great leader at CPP Investments and I have no doubt he will be an excellent leader at Northleaf Capital Partners

In other related news, Razak Musah Baba of IPE Real Assets reports GLP European fund gets €1.7bn from partners CPP Investments and QuadReal:

A GLP European logistics real estate investment platform has received an additional €1.7bn from its partners Canada Pension Plan Investment Board (CPP Investments) and QuadReal Property.

GLP said CPP Investments and British Columbia Investment Management Corporation’s real estate arm QuadReal Property have invested €900m and €800 of equity respectively to expand the investment capacity of GLP Continental Europe Development Partners I (GLP CDP I), the European logistics platform the trio created in 2018 to develop logistics assets in continental Europe.created in 2018

CPP Investments and QuadReal’s investment represent a 45% and 40% share respectively in the venture, with the remaining 15% held by GLP.

GLP said the additional investment will be used to “transform GLP CDP I into a Pan-European development vehicle by strategically expanding in UK and CEE markets via the acquisition of landbank and select high-quality logistics development opportunities”.

The new capital expands the investment capacity of GLP CDP I, giving the venture €4bn of assets under management once fully invested.

Ralf Wessel, managing director, fund management, GLP, said: “This upsize is testament to how well GLP CDP I has performed since its inception. Our investment pipeline is considerably ahead of schedule and we are seeing strong demand for our developments, reflecting attractive fundamentals for logistics development across all major hubs in Europe.

“We look forward to continuing our partnership with CPP Investments and QuadReal to expand GLP CDP I into a truly pan-European development vehicle.”

Andrea Orlandi, a managing director and head of real estate investments in Europe at CPP Investments, said:  “GLP CDP I is a key part of our development-led growth strategy in the logistics sector globally. Given the success of the venture to date, we are pleased to be continuing and expanding our partnership with GLP and QuadReal.

”We have a strong conviction in the logistics and warehousing sector and the ability of GLP to execute on our strategy, enabling us to deliver long-term sustainable returns for our contributors and beneficiaries in Canada.”

Jay Kwan, a managing director and head of Europe, at QuadReal, said: “Expanding our venture with GLP and CPP Investments was a natural evolution of our partnership given its success to date, continued favourable market conditions and strong relationships created with tenants. We’re pleased to be investing alongside two partners with whom we have a lockstep relationship.”

This is a huge deal for CPP Investments and BCI's QuadReal, its real estate subsidiary. 

You can read CPP Investments' press release below:

GLP announced today a strategic expansion in size and scope of GLP Continental Europe Development Partners I (“GLP CDP I”). GLP and its partners Canada Pension Plan Investment Board (“CPP Investments”) through its wholly owned subsidiary, CPP Investment Board Europe S.√† r.l., and QuadReal Property Group (“QuadReal”) have agreed to expand the investment capacity of GLP CDP I, targeting €4 billion of assets under management (“AUM”) (~US$4.9 billion) upon stabilization. Through this expansion, CPP Investments has committed €900 million of equity, representing a 45% share and QuadReal has committed €800 million of equity, representing a 40% share, with the remaining 15% held by GLP.

Ralf Wessel, Managing Director, Fund Management, GLP, said, “This upsize is testament to how well GLP CDP I has performed since its inception. Our investment pipeline is considerably ahead of schedule and we are seeing strong demand for our developments, reflecting attractive fundamentals for logistics development across all major hubs in Europe. We look forward to continuing our partnership with CPP Investments and QuadReal to expand GLP CDP I into a truly Pan-European development vehicle.”

GLP CDP I was established in 2018 to develop modern logistics assets in Continental Europe including Germany, France, Italy, Spain and the Netherlands. The upsize will be used to transform GLP CDP I into a Pan-European development vehicle by strategically expanding in United Kingdom (“UK”) and Central and Eastern Europe (“CEE”) markets via the acquisition of landbank and select high-quality logistics development opportunities.

Andrea Orlandi, Managing Director, Head of Real Estate Investments – Europe, CPP Investments, said, “GLP CDP I is a key part of our development-led growth strategy in the logistics sector globally. Given the success of the venture to date, we are pleased to be continuing and expanding our partnership with GLP and QuadReal. We have a strong conviction in the logistics and warehousing sector and the ability of GLP to execute on our strategy, enabling us to deliver long-term sustainable returns for our contributors and beneficiaries in Canada.”

Jay Kwan, Managing Director, Head of Europe, QuadReal, said, “Expanding our venture with GLP and CPP Investments was a natural evolution of our partnership given its success to date, continued favourable market conditions and strong relationships created with tenants. We’re pleased to be investing alongside two partners with whom we have a lockstep relationship.”

Since entering the European market in 2017, GLP has more than tripled its AUM. Following the upsize of GLP CDP I, GLP now manages more than €12 billion (~US$13 billion) of AUM across Europe’s strongest logistics markets.

The CPP Investments press release states that since entering the European market in 2017, GLP has more than tripled its AUM. Following the upsize of GLP CDP I, GLP now manages more than €12 billion (~US$13 billion) of AUM across Europe’s strongest logistics markets.

The new capital expands the investment capacity of GLP CDP I, giving the venture €4bn of assets under management once fully invested.

That's a lot of money to expand its logistics platform but if you read about GLP, you'll understand why they are committed more to this firm:

GLP is a leading global investment manager and business builder in logistics, real estate, infrastructure, finance and related technologies. Our combined investing and operating expertise allow us to create value for our customers and investors. We operate across Brazil, China, Europe, India, Japan, the U.S. and Vietnam and have more than US$100 billion in assets under management in real estate and private equity.

Why logistics? As Andrea Orlandi, Managing Director and Head of Real Estate Investments in Europe at CPP Investments states:

”We have a strong conviction in the logistics and warehousing sector and the ability of GLP to execute on our strategy, enabling us to deliver long-term sustainable returns for our contributors and beneficiaries in Canada.”

Catch the part "and the ability of GLP to execute on our strategy" as you need strong partners to expand all these real estate and infrastructure platforms and they need to keep executing. 

Execution, execution, execution -- the three "Es" as I call them -- that's what it's all about. 

Logistics remains a very hot area of focus for institutional investors and I think it's because investors are not just betting on the rise of e-commerce but they're also worried the pandemic won't end any time soon as variants wreak havoc across the world. 

Anyway, this logistics platform is a great long-term investment. CPP Investments will own 45% of this joint venture and QuadReal 40% with GLP owning 15%.

Below, take the time to watch a Canadian Club Toronto virtual event where CPP Investments' CEO John Graham delivered his first public speech and was joined in conversation by BNN Bloomberg’s Amanda Lang to discuss how his unique experience as a research scientist led him to take the helm at Canada’s largest pension fund investor.

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