A Holiday Message From John Graham and Jim Estill

CPP Investments recently posted a letter to Canadians from John Graham, President & CEO, on the state of the Fund:

In April, my first Letter to Canadians appeared on our website. Having just been appointed CEO, I spoke about my background and leadership approach. I want to turn now to the state of the CPP Fund and current trends of common interest to Canadians, as well as to share updates on our strategies and actions to mitigate risks and seize opportunities arising from these trends.

“The only constant in life is change.”

This phrase, attributed to a Greek philosopher, is as true today as it was 2500 years ago. After the challenges of the past two years, Canadians can find themselves wishing that 2022 brings a steadier, calmer state of affairs.

Heat domes, extreme drought and atmospheric rivers have now become part of our vocabulary. Price hikes are causing shockwaves in shopping aisles. Many young Canadians are understandably worried about being able to afford their first home. And just as we thought that the pandemic might be waning, a new and worrisome variant of COVID-19 has arrived in our communities.

Your retirement security is our business

For many Canadians, the path ahead feels uncertain. However, one unwavering pillar which should provide a measure of comfort to the 20 million of us who are contributors and beneficiaries is the Canada Pension Plan. Your CPP Fund is strong and resilient, and the future value of your benefits remains solid.

With a 75-year investment horizon and a mandate that steers CPP Investments towards long-term thinking, we are very well-equipped to manage through current trends, and plan for those that may emerge years from now. Our highly diversified, global investment portfolio and active management strategy is consistently delivering strong results for you. As of September 30th, the CPP Fund has earned a record 10-year annualized net return of 11.6 per cent, the best 10-year return since we began active investing in 2006.

The impact of inflation

Over the past three decades Canada has become accustomed to low inflation. This year’s rapid rise in the price of goods and services is understandably causing concern. A combination of factors has driven up the price of everyday necessities, from groceries to gasoline. These factors include rising consumer demand as the economy reopens on top of the global supply chain disruptions we’ve endured through the pandemic.

At CPP Investments, we design our portfolio to be resilient to macroeconomic shocks. The diversified assets we hold help to provide protection against inflationary pressures. Certain asset classes such as infrastructure and other real assets, can be expected to perform well in a higher inflation environment. As always, we are ready to adjust our portfolio composition in the face of changing economic circumstances to take advantage of opportunities and mitigate risk. We remain patient and judicious investors.

We also consider inflation in our reporting to you. This is why we report on the real rate of return of the CPP Fund; that is, the value we create after inflation is taken into account. Rest assured that the value of the CPP Fund is well above what is required to fulfill its promise to you of a secure source of retirement income.

Embedding sustainability into our investment activities

The rapid and accelerating warming of our planet can be seen in our daily lives and is creating both risk and opportunity in markets. Climate change rivals COVID as a disruptor of our social and economic life.

With that in mind, I’m proud to report that CPP Investments is a leader in sustainable investing and ESG (environmental, social and governance issues) in general. Through our efforts to promote higher standards and better disclosure of ESG risks in financial reporting, we are encouraging all companies at home and abroad to ramp up their climate change policies and practices as a way to drive long-term value. We work closely with the companies we invest in to strengthen their climate change strategies and their efforts to improve equity, diversity, and inclusion in the workplace. We hold them accountable for their progress through our proxy voting activities and by working directly with their boards of directors. For more information on how we voted this year, I encourage you to review the “Sustainable Investing” section of this website (housed under the main page tab entitled “The Fund”), as well as our most recent Report on Sustainable Investing.

We know that the retirement security of 20 million Canadians, their children and their grandchildren will be impacted by how effectively we manage our investment portfolio amid the global economy’s transition to net zero. It is a challenge that is rooted in our mandate, and we embrace it.

To spearhead this work and underscore its primacy, we have appointed our first-ever Chief Sustainability Officer, Deb Orida, who is also Global Head of Real Assets. In her new role, she will work closely with Ed Cass, our Chief Investment Officer, and our teams across the organization to deliver a Sustainability Roadmap to guide us through the next several decades.

Investing in the path to net zero

CPP Investments is launching a new investment approach to identify and leverage the opportunities that will emerge from the economy-wide transition to a low-carbon future. This investment approach is premised on identifying, funding and supporting essential, but high-emitting companies that are committed to lowering their emissions in a way that will allow CPP Investments to drive strong investment returns. We believe that these companies will deliver value to patient investors where they can successfully navigate this transition. Read more about this in our latest perspective.

We’re focused on investments in innovative technologies that are shifting our economy toward low-carbon pathways, while providing attractive returns and long-term value.

This year we invested in Advanced Drainage Systems, Inc. (ADS), a world-class provider of water management infrastructure. They operate a global network of manufacturing plants and distributions centres and are the second largest plastic recycler in North America.

We also formed a strategic partnership with Conservation International, a leading environmental NGO with offices in 30 countries. This is a rare and unique partnership between a global asset manager and an environmental NGO. Together, we will invest in nature-based solutions within the voluntary carbon market, with initial projects in Brazil, Chile, Peru and Colombia. This investment capitalizes on increasing global demand for nature-based carbon credits and helps advance global decarbonization efforts.

To combat climate change, we also need to track its impact. In September, we invested in Planet Labs Inc., recognized for its data and insights on climate-based changes in the Earth’s forests and agricultural regions. The company designs and manages one of the world’s largest fleets of satellites, capturing over three million images a day.

Optimism for 2022

This past year was a challenging one for Canadians and for people everywhere, yet I see reasons for optimism. The incredibly rapid development of highly effective vaccines to fight COVID-19 has been a remarkable achievement, as are new commitments to achieve net zero emissions globally and the associated emerging technologies to get us there.

I know that Canadians have a lot on their minds these days, from keeping healthy to visiting family. But one item that Canadians can continue to feel secure in, is the certainty of the Canada Pension Plan; it will be there for you and for generations of Canadians to come.

On that note, from all of us at CPP Investments, Happy New Year and best wishes for 2022!



A very nice, succinct letter from John Graham to reassure Canadians that the CPP Fund is in great shape, globally diversified and always focused on the long run, looking to capitalize on secular trends like decarbonization of the global economy. 

John is a scientist with an MBA. We last spoke back in March when I covered his nomination and I've continued tracking CPP Investments' activities very closely. I have no doubt he's transitioned nicely into this leadership role.

I also had a conversation with Ed Cass, CPP Investments' first CIO, back in April and more recently spoke with Deb Orida, the organization's first-ever Chief Sustainability Officer who is also Global Head of Real Assets.

On Monday, I covered CPP Investments' US$1.1 billion joint venture with Bridge to develop industrial properties in several core markets across the United States and also mentioned CPP Investments posted an important comment on investing to enable an economy-wide evolution to a low-carbon future:

Most current initiatives to tackle the climate crisis do not address strategic sectors that are both essential and high emitting.

These strategic sectors include agriculture, chemicals, cement, conventional power, oil and gas, steel and heavy transportation.

The successful decarbonization of these strategic sectors is not only essential to meet wider net-zero ambitions, but also to sustain economic growth, stability and a responsible transition.

CPP Investments sees an opportunity to create value and pursue new investments by applying a decarbonization investment approach, which seeks attractive returns by enabling an economy-wide evolution to a low-carbon future. This investment approach is premised on identifying, funding and supporting high-emitting companies that are committed to lowering their emissions in a way that will allow CPP Investments to capture attractive risk-adjusted returns. We believe that high-emitting companies that navigate this evolution successfully will preserve and surface embedded value for patient investors.

The climate challenge will require unprecedented collaboration and capital. We welcome dialogue and opportunities for partnership with like-minded companies, industry leaders, investors, and other interested parties as we build a dedicated investment approach to support current and future portfolio companies in their transition.

Please take the time to download and read this report here.  

John Graham understands that strategy without execution is useless; it's all about execution and I can assure all Canadians CPP Investments focuses on execution when it comes to all their activities, including this one.

You can track the latest news from CPP Investments here including their latest press release announcing a joint venture with Mitsubishi Estate Co., Ltd (Mitsubishi Estate), a leading Japanese real estate developer, to pursue investments in commercial and residential assets in Japan. 

Now, it is the holiday season, I will wind down my activities to spend time with my wife and family (although the exponential rise of Omircron has thrown a wrench in everyone's holiday plans).

I plan on relaxing, watching movies and have a couple of books on my to read list:

I highly recommend you read these books even if you don't care much about Modern Monetary Theory (MMT) or about radical uncertainty. 

In 1995, I did an honors course in History of Economic Thought at McGill University where Robin Rowley taught us about how great economists like Keynes, Hicks, Knight, Kalecki, Tinbergen and more thought about probability and uncertainty in economics.

Fast forward to 2021 and soon 2022, and we are still discussing radical uncertainty in economics. 

John Graham quotes Heraclitus and so does Plato:

“Heraclitus, I believe, says that all things pass and nothing stays, and comparing existing things to the flow of a river, he says you could not step twice into the same river.”  – Plato

Innovation and disruption are all around us, radically transforming the world we live in, but so are many social ills that have plagued us throughout history: poverty, war, famine, rising inequality and geopolitical tensions.

There's a ton of focus on the "E" in ESG investing but we also need to increasingly worry about the "S" and "G".

In short, in order to make it a better world for everyone, we need to focus on all three pillars, not just one.

When I was at McGill studying economics and mathematics, some of the most important courses I took as electives were in political theory.   

In particular, taking courses that Charles Taylor taught was an intellectual feast for me, it really opened my mind in ways I can't describe.

No matter how bleak the world may seem, no matter how dangerous or protectionist the pronouncements of politicians, or how alienated middle and working-class people feel, Taylor, BA’52, manages to find hope, for he knows that to be human is to navigate a path filled with both ups and downs.

“There is no escalator of history inevitably pushing us towards more rational thought,” says Taylor in a wide-ranging interview on the day he is to deliver the Beatty Memorial Lecture to a packed concert hall during McGill Homecoming.

“Democracy has inherent dangers and pitfalls built into it. It’s a perpetual struggle to keep what we have and maybe advance a few more inches – and if non-elites play less and less of a role in society, democracy is vulnerable to regression.”

In ancient Greek, Taylor notes that ‘demos’ means the ‘common people,’ the non-elites that democracies need on side to survive and thrive. And one ignores the ‘demos’ at democracy’s peril.

“Right now, Canada is fairly well off in the western world, one of the least bad of these cases,” Taylor says. “Think of it as having a bad cold that could lead to double pneumonia. The U.S., on the other hand, is in the double pneumonia situation and we should look at what can be done to stop it from getting even worse.”

People cannot get complacent, he stresses. There have been triumphal moments when a surge forward seemed a sure thing; moments such as the end of the First World War in 1918, the defeat of Adolf Hitler in 1945 and the fall of the Berlin Wall in 1989. After each one, democracy was supposed to have struck a decisive victory and life for the ‘demos’ was supposed to get better.

But for each vaunted advance, there has been a retreat. Think of Russia in the nineties, which seemed to be transitioning to a democracy until people like current president Vladimir Putin, once a KGB officer, came along. Think of the fragile democracy in Turkey, which shattered after a coup attempt led President Recep Tayyip Erdoğan to repress any form of opposition. Think of the long gone Arab Spring in the Middle East and of Poland, the land of Nobel Peace Prize winner Lech Walesa, once a beacon of democracy in a post-Soviet world, now lurching to the extreme right.

And yet.

“It’s a process,” Taylor says. “Parts of the world may seem to be drifting in the direction of totalitarianism, but I think there are also forces working against this. I have been involved in politics all my life and to be involved in politics, you have to believe that changes can be made. You have to manufacture a certain horizon of hope to go on acting.”

Taylor made me want to learn more about moral and political philosophy, after reading his seminal work, Sources of the Self, I started devouring books written by Isaiah Berlin, Alistair MacIntyre, Michael Walzer, Martha Nussbaum and many other great minds. 

In fact, if you want to improve your S and G in ESG Investing, I highly recommend Michael Walzer's classic, it's very readable and just brilliant:

The world is going to face many challenges ahead, the pandemic is the least of our worries, it will come to an end sooner rather than later, but it's rising inequality and extremism that worry me most and the total lack of proper political discourse as to how we will address these issues:

The cynic in me sees a continuation of these worrisome trends, after all the elites don't want to see a revolution and any change to the status quo.

But things will change, Newton’s third law states: "To every Action there is always an equal Reaction."

That's not just true of physics, it's also true in the socioeconomic realm. 

Exactly how we shape the world into a better, more diverse and more inclusive post-pandemic world remains to be seen. 

I'm not impressed with rhetoric, actions and execution impress me

As far as risks, there are plenty for 2022, AIMCo tweeted this earlier today:

My number one risk for next year remains a policy mistake and deflation, not inflation, but I will need to sit down early next year and go over my thoughts with you when I write my Outlook 2022.

In the meantime, take the time to read Bridgewater's thoughts on the popping of bubbles as liquidity runs out:

Alright, let me end by thanking all my supporters. I sincerely thank all of you, especially those of you who value the work that goes into my comments. I hope to improve my content next year (always aim for better) and God willing, keep posting great comments on pensions and investments.

Have a wonderful holiday season, please stay safe and note the best way to fight a pandemic is to get vaccinated and individually limit our contact with people. If you are using rapid tests, make sure you use them properly to avoid false results:

Just remember, if you have a sore throat, headache and chills from low grade fever, don't bother testing, just assume you have Omicron and isolate for as long as it takes. 

Below, Chris Goulakos, Managing Partner of Balius Partners, and Howard Marks, Co-Chairman of Oaktree Capital Management, joined members for a fireside chat at Latticework on December 15, 2021. Chris and Howard explored the topic, “Tech Disruption and Value Investing in the Digital Age”.

A discussion with Howard Marks is always worth listening to, and this one is another great one.

Lastly, in the latest Contributors podcast, Marnie Niemie and Russell Evans of CAAT Pension Plan, sit down with Jim Estill, CEO and owner of Danby Appliances. Jim shares his secrets to lasting business success and how to make a positive impact on the world. 

Take the time to listen to this podcast here, I've been ranting and raving about it to friends because it's truly phenomenal, probably one of the best podcasts I've heard in a very long time (all these podcasts are high quality, including the one with Stephen Poloz, the former Governor of the Bank of Canada).

In short, Jim Estill is amazing, he's authentic and has tremendous experience as an entrepreneur, sitting on the board of BlackBerry and scaling up philanthropic efforts to welcome Syrian refugees to Canada. 

I love this quote:

“Well, I believe business people should do more of this type of thing because business people know how to organize for scale. I say to my business friends, if you can run a company with 800 people, you can run a volunteer organization with 800 people.” - Jim Estill

I also embedded another great clip featuring Jim Estill discussing his journey as an entrepreneur and philanthropist. 

I also encourage you to read his blog, especially his last post on sleep on it decision making.

Take it from me, quality sleep is by far the best thing for your health and well-being, so take advantage to catch up on your Zzzs over the holiday season as you wait for this Omicron storm to pass (it will pass).

Happy holidays everyone, stay safe and be well, I'll be back early next year.