A Discussion With CAAT Pension Plan's CIO and CPO on their Strong 2024 Results

Layan Odeh of Bloomberg News reports CAAT Pension Plan CIO hunting for more private investments at home:

CAAT Pension Plan is searching for Canadian real estate and infrastructure investments, continuing its strategy of investing for the long term as U.S. President Donald Trump’s erratic trade policy disrupts public markets.

Canadian investments comprise about a quarter of the Toronto-based fund’s $23.3 billion (US$17 billion) of assets, CAAT said in a statement Tuesday, when the pension reported a 15.2 per cent return for 2024.

“We are very interested in continuing to invest in our own country,” Chief Investment Officer Asif Haque said in an interview, adding that the firm is also “intrigued” by opportunities in European private markets and Asian investments.

Canadian pension fund managers are grappling with a new reality this year amid Trump’s unpredictable trade policy, which has disturbed public markets and weakened the outlook for U.S. private equity deals. While the market volatility concerns Haque, he said he also sees “pockets of opportunity” across public and private markets.

The fund’s returns were driven by investments in public equity such as stocks and private equity, which gained 29 per cent and 16 per cent, respectively. Real assets returned 4.6 per cent, while commodities earned about 17 per cent. Credit advanced 11 per cent.

The pension plan will continue building out its real estate and infrastructure portfolio this year after making some investments in energy transition, industrial real estate and multiresidential properties. Real assets comprise 17 per cent of the pension’s total, and CAAT aims to boost that to 25 per cent.

Originally created for the Ontario college system, CAAT now invests pension assets for 700 employers and more than 110,000 members in various industries.

Earlier today, CAAT Pension Plan reported a strong financial performance in 2024:

Strong investment returns lead to growth in total assets. Healthy funding reserves provide peace of mind for Plan members and employers

TORONTO, April 22, 2025 — CAAT Pension Plan ("the Plan") released its 2024 Annual Report today. The Plan’s investment portfolio recorded a 10-year annualized net rate of return of 9.6% as of December 31, 2024. The Plan outperformed its policy benchmark by 1.5% per year over this 10-year period. This strong performance was supported by an annual net rate of return of 15.2% in 2024.

At year end, the Plan had $23.3 billion in total assets under management, up from $20.1 billion in 2023. Funding reserves, which can serve as a cushion against market and demographic volatility, were $6.1 billion as of January 1, 2025. As previously reported, the Plan has set aside $1.24 for every dollar promised in pensions, or a funding level of 124 percent on a going-concern basis. With the Plan’s continued financial strength, CAAT committed to pay its conditional inflation protection enhancements to 2028; a promise it has maintained since the policy was introduced in 2007.

Secure, even in uncertain times

“Employees want a strong, sustainable pension plan that delivers the unparalleled value of predictable lifetime retirement income” says Derek Dobson, CEO and Plan Manager, CAAT Pension Plan. “Sound investment management and funding decisions helped build reserves to allow the Plan to continue to grant valuable benefit enhancements even in times of economic uncertainty. This sense of strength and stability improves employee wellbeing long before retirement, which is why demand for high-performing workplace pensions continues to grow.”

The Plan’s assets are invested in a broadly diversified portfolio, including public and private equities, nominal and inflation-linked bonds, real assets and commodities.

“All asset classes in the Plan’s portfolio contributed positively to performance during 2024”, says Asif Haque, Chief Investment Officer, CAAT Pension Plan. “While we are gratified by the strong results for the year, we are especially pleased that long-term investment performance has contributed to furthering the health of the Plan.”

Workplace pensions can build a more resilient domestic economy

Leaders in Canada’s public, private and not-for-profit sectors are looking to build a more durable domestic economy. Providing Canadians with greater access to workplace pension plans can contribute to this goal. Plans that provide a predictable stream of retirement income for life can boost productivity, support local businesses and contribute to the country’s economic growth and prosperity. In 2024, for instance, CAAT paid out $724 million to retirees or their beneficiaries, improving financial security for members and supporting local economies across Canada. It also allocated more than 25% of its investment holdings in Canadian equities, bonds, real estate and infrastructure.

In providing greater access to workplace pensions, the Plan also achieved an important milestone in 2024. Membership surpassed 100,000 employees in Canada and has more than doubled its size since the Plan introduced its DBplus design in 2018, opening its workplace pension solution to the private, non-profit and broader public sectors. The number of employer sponsors has expanded from approximately 50 to over 700 during the same time.

Other highlights from the 2024 Annual Report include:

• Ranked #1 highest performing Canadian pension plan in the BNY Mellon Canadian Master Trust Universe, based on 10-year investment returns at the end of 2024 for plans with a market value above $1 billion.
• Introduced the GROWTHplus Investment Account, a voluntary, tax-sheltered savings option available to Plan members that allows any additional savings to benefit from the CAAT net rate of return.
• Nine in 10 members reported trust in the CAAT Plan and confidence that their pension benefits are secure.
• Recognized as a Top Employer and Best Place to Work by Benefits and Pensions Monitor.

About CAAT:

Established in 1967, the CAAT Pension Plan is an independent, jointly governed plan that offers highly desirable modern defined benefit pensions. Originally created to support the Ontario college system, the CAAT Plan now proudly serves more than 700 participating employers in 20 industries, including the for-profit, non-profit, and broader public sectors. It currently has more than 110,000 members. The CAAT Plan is respected for its pension and investment management expertise and focus on stability and benefit security. On January 1, 2025, the Plan was 124% funded on a going-concern basis.

Late this afternoon, I had a Teams meeting with CAAT Pension Plan CIO Asif Haque and Chief Pension Officer Evan Howard going over the results and Plan activities.

Before getting to that discussion, I urge my readers to go over the 2024 Annual Report here. 

I actually read it all and it's very well written so let me go over some things below.

First, the message from Chair Kareen Stangherlin and Vice-Chair Virginia Di Monte:

 

I'd like to also congratulate CEO and Plan Manager Derek Dobson for celebrating his 15th year at CAAT Pension Plan.

I also note the most important passage in the Chair and Vice-Chair's message:

In 2024, the Plan maintained a healthy funded ratio of 124% and built reserves to a total of $6.1 billion, which serve to cushion against potential changes in investment markets or unexpected liability growth. This funding strength, along with CAAT’s leadership expertise, has helped Plan governors make decisions that will benefit members and employers in 2025 and beyond, including, as previously announced, reducing contribution rates for DBprime benefits and increasing the DBplus benefit factor on contributions starting January 1, 2025.

After growing to over 100,000 total members last year, CAAT launched an innovative workplace retirement solution, GROWTHplus Investment Account, allowing members the option to save more by investing with the pension plan they know and trust. At its core, the design delivers on a vision that has catapulted CAAT since it opened membership to its defined benefit (DB) plan: to offer members efficient ways to save towards a more secure retirement, while keeping costs and risks low for employers.

CAAT Pension Plan enjoys one of the best, if not the best funded status in Canada and is doing its part in offering safe, secure and cost efficient DB pensions to members across the public and private sector.

The organization also introduced GROWTHplus allowing members to save more by investing with CAAT Pension Plan:

In October 2024, CAAT launched its latest innovation: GROWTHplus, an optional savings account for Plan members to grow their tax-sheltered savings and benefit from CAAT’s investment returns. Available at no additional cost to employers, the account provides added value to members’ lifetime pension with CAAT through both its investment scale and expert management.

Next read the message from Derek Dobson, CAAT Pension Plan CEO and Plan Manager: 

 I note the following:

Our secure pension promise is built on a solid financial foundation. I am pleased to share the Plan remains 124% funded, holding $23.3 billion in total assets under management and $6.1 billion in funding reserves. The fund’s diversified investment portfolio recorded an annual net rate of return of 15.2%, contributing to a 10-year annualized net rate of return of 9.6%. The Plan extended conditional inflation protection enhancements to 2028, an enhancement that has been granted every year since its introduction in 2007.

These strong results are more assuring when you consider that they include the previously announced improved DBplus benefits and reduced DBprime contributions. On top of this, Plan governors reduced the discount rate by 15 basis points to 4.75%. A lower rate reflects a measured risk tolerance and prudent assumptions of expected returns to manage liabilities in the long run. This approach puts our commitment to benefit security at the centre of management and funding decisions.

As we continue to manage long term risks, we do so in an increasingly challenging market environment. These conditions underscore the importance of the Plan's robust approach to safeguarding benefits and building reserves. With a diversified portfolio and robust reserves set aside to protect the Plan against economic shocks, our members and employers can be confident in the resilience and sustainability of their pension plan.

Alright, let me also provide some highlights and other pertinent information to help my readers understand CAAT Pension Plan's portfolio:

First, the 2024 highlights:

 

 Next, have a look at CAAT Pension Plan's long-term asset mix target:

 

The portfolio above is where the asset mix is heading over time.

Below is the actual asset allocation, including the effect of derivatives and the associated benchmark index as at December 31, 2024 (from page 60 of the Annual Report):

From what I can tell, there was a slight decrease in Real Assets last year (from 19% to 17%) and Commodities (from 5% to 4%) and a slight increase in Public Equities (from 30% to 32%) and Credit (from 6% to 7%).

And here are the net investment returns by asset class for 2024:

And the net Fund returns vs policy benchmark:

Like almost all its peers, CAAT Pension Plan underperformed its policy benchmark last year due to the strong performance of Public Equities which made the benchmark in Private Equity surge (PE returned 16% relative to benchmark return of 31% made up of MSCI ACWI +3%):

The Plan’s assets totaled $23.3 billion at the end of 2024 (up from $20.1 billion in 2023). The investment portfolio returned 15.2% in 2024, net of fees. All asset classes contributed positively to returns during the year, led by Public and Private Equity. The portfolio underperformed its policy benchmark in 2024, due to the Private Equity asset class lagging its benchmark. Over the past 10 years, Private Equity has outperformed its benchmark significantly.

This is why I keep emphasizing it's important to look at long-term performance over 5 and 10-year periods and in this regard, CAAT Pension Plan continues to outperform its policy benchmark adding 1.2% and 1.5% respectively over the last five and ten years..

In fact, in their press release, it states the Plan ranked #1 highest performing Canadian pension plan in the BNY Mellon Canadian Master Trust Universe, based on 10-year investment returns at the end of 2024 for plans with a market value above $1 billion.

That long-term performance is very impressive but the most important thing to note is the Plan's funded status remains extremely strong at 124% and they took measures to ensure the funded status remains strong no matter what happens in markets.

Discussion With Asif Haque and Evan Howard

As I stated above, this afternoon after markets closed, I had a chat with CIO Asif Haque and CPO Evan Howard.

I want to thank both of them and also thank Andrew Seymour and Theresa Wilson for setting up this meeting.

I began by asking Asif to give me an overview of their performance:

If there's three things we want people taking out of that annual report. From an investment standpoint, we care very much about investment performance over the long term doing what it needs to do to make sure the Plan health is supported and enhanced where we can. And our 10-year performance of 9.6% net of fees more than fills that bill and we're very proud of that.

Also you know well from our previous conversations, active management is an important part of our investment program and an important part of our value proposition and over a ten year period, we outperformed our policy benchmark by 1.5% net of fees, so again something we are quite proud of. Value added across all asset classes over the long term period.

We don't think about the 15.2% that we were able to generate last year net of fees. We can talk about that but you know what markets were doing in 2024. 

The last thing I would say is the discussion in Canada right now given the macroeconomic headwinds is all about resilience and the Plan is resilient. That's the thing we are most proud of and we are happy with $23 billion in assets and we now have over $6 billion in reserves to help buffet the Plan against economic headwinds, market shocks, demographic changes, etc.

So the long term performance, the one year return and the resilience baked into the Plan are the three things from a financial perspective we'd want people to take away.

Evan Howard, the Chief Pension Officer then gave an overview of the Plan's activities last year:

It's in the report but we passed some significant thresholds this year. We surpassed 100,000 members during 2024 and entered the year with over 111,000 members, really more than doubling the membership we had when we started all this. 

On the employer side, ended the year with over 700 participating employers which again coming a long way from the 30 Ontario community colleges and employers that are our roots.

The other big milestone is we did the GROWTHplus investment account which is  a voluntary savings account available to all of our Plan members and allows them to earn the CAAT return on their tax-sheltered savings.

I asked Even if this replaces a TFSA and he replied:

It's not a TFSA. As far as the Income Tax Act, it's considered an "AVCA" or an additional voluntary contribution  account and it's subject to the same pension adjustment contribution limits that an RRSP would be subject to.

Right now, if a member has assets in their RRSP whether they're locked in or not locked in, they can transfer those to us. Right now we are only taking transfers but over the course of this year we are building capacity for members to provide payroll based contributions if they have an excess contribution room that they can then direct a monthly amount into if they wish to.

Since they just launched it late last year, the uptake reported in the annual report is $5 million so far which Evan told me is in line with their expectations.

I asked him what is the typical profile of employees and employers in their Plan and he responded:

It's a mix. There's definitely many smaller employers from the non-for-profit sector or the private sector. One of the great things is these are employers where gaining access to a defined benefit plan is something they wouldn't be able to do on their own.  

Another employer that joined us effective at the beginning of this year is West Jet in respect to all their pilots.

Evan also reminded me they have an arrangement with Lawyers' Financial, formerly Canadian Bar Insurance, for lawyers to join their Plan. 

I shifted my attention back to performance and noted even though the Plan underpeformed its benchmark last year, it was the same story, Public Equities soared so Private Equity underperformed its benchmark despite posting another solid year.

Asif responded:

That's exactly right, the absolute return of Private Equity in 2024 was 16%. On an absolute basis a very strong return but yes, against a Public Equity focused benchmark given Mag-7 dynamics last year, it underperfomed on a relative basis. We don't think about the performance of Private Equity on a one-year basis but that's what it was in 2024. But longer term, more than 20% return out of Private Equity for the 10-year period, quite a bit exceeding its benchmark for that 10-year period. So both on an absolute basis and relative to benchmark basis, we are very pleased with our PE portfolio over a longer period.

No question about it, it's an excellent performance over a longer period and even returning 16% last year is nothing to sneeze at.

I noted they marginally beat their Public Equity index last year 28.9% vs 28.2% and asked whether external hedge funds helped them do that. Asif replied:

You remember that a large part of our Public Market program is a portable alpha structure and yes, the impact of a hedge fund program was a meaningful contributor to value added. The traditional long only public equity portfolio was more or less flat for the year in terms of benchmark relative performance so it really was the hedge fund side that led to that outperformance for the one-year period.

But again the longer term performance even in public markets is what we care about and the value added in all public market asset classes has been positive driven by both hedge funds and long only funds.

I then noted that Real Assets made up of Real Estate and Infrastructure returned 4.6% last year and asked him what is the mix between the two in terms of exposure there and he told me 60-40 between Infra and Real Estate (or 65-35 but he didn't have the specific figures in front of him). He told me "it is titled towards Infrastructure but not in a huge way."

He told me they had a strong year in Infrastructure and Real Estate wasn't that bad, "flat or slightly down on an unhedged basis for the year but again these are asset classes where we care very much about the long-term performance and their contribution to the Plan's health over the long term, again, we are very pleased".

The Real Assets portfolio is very important and I noticed they increased their allocation to Credit to 7% last year, coming closer to the 8% long-term target.

I also mentioned in the Bloomberg article, the perception it left me was they're moving away from US assets to find opportunities in Europe and domestically here in Canada and asked him to clarify. 

Asif responded:

I would say the Credit portfolio is a global portfolio so there is no distinct intention to look at European opportunities, it's more global. When I was talking about opportunities in Europe, we were leaning a bit more toward the Real Asset side, we were seeing more opportunities in Infra and Real Estate space in Europe in 2024 and we are looking at other opportunities in 2025.

In terms of policy uncertainty in the US and whether that is influencing allocations, he added:

No, I would say we are continuing to look at all the different asset classes that meet what we require in terms of enhancing the overall health of the Plan over the long run. We look globally for those opportunities so that hasn't changed, our focus on looking fo the best opportunities wherever they may be around the world, that has not changed.

Part and parcel of that is we are always looking for great opportunities here at home. And we have through 2024 and again in 2025 been finding good opportunities again mainly in the Real Assets space in Canada and we are very pleased about that.

So, it's not in any way a shift  away from one geography into many others. We continue to have a global view, we continue to have  along-term view and it so happens we've been finding great opportunities that enhance the health of the Plan in Canada.

I ended by asking him given the volatility in markets if they are implementing any shifts and he said over the short term they are shoring up liquidity and risk management but their focus remains on the long term.

I thank Asif and Evan for taking the time to chat with me, and I just noticed the Toronto Maple Leafs are leading the Ottawa Senators 2-1 at the end of the second so Asif should be very happy (and I want to catch the third period action).

Below, CNBC's 'Fast Money' traders react to President Trump's comments that he does not intend to fire Fed Chair Powell. Hallelujah! Let's hope he has finally seen the light there!