John Graham on the Importance of the CPP, Attracting Capital to Canada and More
The head of CPP Investments is signalling that the $730-billion Canada Pension Plan fund is keen to invest in nation-building infrastructure and energy projects promised by Prime Minister Mark Carney’s government — if the projects offer scale, stability, predictability and transparency.
In a speech in Toronto on Monday, chief executive John Graham outlined a number of investments the fund already has at home, and said that if Ottawa and the provinces get the formula right for nation-building projects — aimed at reducing reliance on the United States — Canadian pensions won’t be the only ones to be lining up to invest.
“When Canada offers the right opportunities, we step in. These days we are looking to invest in nation-building projects: large scale infrastructure and energy systems,” he said. “I’ve been encouraged by what’s happening in Canada recently: policymakers of all political stripes, federally and provincially, working together to unlock this country’s potential.”
But while he said he has been fielding calls from international institutional investors over the past six months who are curious about investing in potential new opportunities in Canada, he also sounded a note of caution.
“Many global investors are eager to put capital to work in Canada. But here’s something I’ve learned from working with the world’s top investors: capital is fluid and mercenary. It will always flow to opportunities of least resistance.”
After his speech, Graham said the recipe for success would include making infrastructure at scale available to pension investors, such as ports and pipelines, with potential for expansion rather than upfront building risk. He said institutional investors, not governments, would need to be in the driver’s seat to ensure control over sustainable long-term returns.
“We see the blueprint around the world. This is what works,” he said. “This is what attracts capital. And then it’s just whether there’s a willingness to do it.”
Investments in existing infrastructure with expansion possibilities, such as Trans Mountain Corp., would fit the bill. The federal government purchased Trans Mountain in 2018 for $4.5 billion and funded an expansion that cost $34 billion, and is widely expected to sell it at some point.
“These are the type of opportunities we look at and look we think about — the investments we’re already in around the world,” Graham said. “Here in Canada, we like pipelines. We like oil and gas pipelines. We have Wolf Midstream (Inc.) in Alberta.”
He said he is optimistic that Canada’s political leaders can use the momentum to attract institutional money to infrastructure and energy projects because CPP’s own history shows that political adversaries can put long-term national interests ahead of politically expedient ones.
The Canada Pension Plan Investment Board was created in 1997 when, faced with a demographic funding crisis, federal and provincial politicians agreed to convert the pay-as-you-go pension model of the 1960s to a pooled capital system to be invested by the professional management organization.
“I am confident they can do it, because they did it before in 1997 with the original pension reforms,” he said.
“Canada solved the pension affordability crisis … It shows what we can accomplish when we work together and put the long term first.”
About 12 per cent of the CPP fund is invested in Canada.
When the previous Liberal government pushed for Canadian pensions to invest more at home, CPP Pension officials pushed back, arguing that the CPP fund was “overweight” in Canada, given the size of the country’s contribution to the global GDP. There was also a widespread view that projects on offer by Canadian governments didn’t offer the size, scale, independence and risk profile that appeals to Canada’s globe-trotting institutional investors.
In his speech, Graham pointed to a handful of the CPP fund’s Canadian investments, noting that Canadians come across many in their daily lives, from fast food to energy and tech.
“If you drive Highway 407, eat at A&W, shop at Dollarama, or use Shopify’s platform, you’re touching companies we’ve invested in,” he said. “We have (also) supported this country’s largest energy producer, Canadian Natural Resources for over a decade. And we’re financing infrastructure of the future — like Cambridge’s new data centre (in Ontario in partnership with Deutsche Bank and others).”
He signalled that he is prepared to do more, so long as Canada gets the model right, and expressed optimism that Carney is assembling a team that has deep experience in capital markets and institutional investing — from Clerk of the Privy Council and former Caisse de Dépôt et placements du Québec CEO Michael Sabia to his chief of staff Marc-André Blanchard, who also worked in a senior capacity at the Caisse.
“(They) understand how the model works,” he said, adding minister of energy and natural resources Tim Hodgson to the list.
“He understands, from his time on the PSP (public sector pension) board, from his time at Goldman (Sachs), how it works for investors, what works and what doesn’t,” Graham said.
He urged governments across Canada to showcase unity and coordination to help draw in capital to support announced and future nation-building projects that include upgrading and expanding ports, rail lines, pipelines, carbon capture and storage and wind energy capacity across the country.
“Those are exactly the kind of projects both foreign and domestic investors, including us, are ready to support,” he said. “Not because of rhetoric or emotional appeal (but) because capital will find its way to markets that work.”
In his speech, Graham said CPP Investments has cooled to U.S. public equities, which they deem too concentrated in a handful of technology companies, with the potential to expose the retirement fund to “unacceptable” risk.
“Right now, we are not chasing U.S. public equity markets,” he said.
However, that doesn’t mean the fund is pulling back from the United States overall, despite less predictability and more protectionist policies enacted by the current administration.
“At the end of the day, the U.S. is the largest, deepest market in the world, the deepest capital markets,” he said after his speech. “And if you want to pull back from the U.S., you’d have to ask, Where are you going to go? … We have to actively manage the U.S. portfolio so it doesn’t get too big, because it has done so well.”
James Bradshaw of the Globe and Mail also reports CPPIB CEO says leaders must act quick as world’s largest investors focus on Canada:
Canada is attracting new interest from the world’s largest investors and has a chance to grab a bigger share of foreign capital, but political and business leaders need to act quickly, the chief executive of Canada’s largest pension fund says.
Just last week, Canada Pension Plan Investment Board CEO John Graham hosted two “extremely large foreign investors” who wanted a primer from him on Canada’s investing landscape.
“They have capital and they’re curious. And this week I’m hosting another one,” Mr. Graham said in an interview on Monday, after speaking at an event at the Canadian Club Toronto.
Of late, he has found that the tone of those conversations has been different. These large investors hail from Asia and the Middle East, and until now, many of them “haven’t done a lot here,” he said.
Mr. Graham has travelled abroad to meet investors for years and found that their portfolios consistently underweighted Canada, which was overshadowed by the vast market next door in the United States. Big investors routinely allocate less than 1 per cent of their funds to Canada, even though it makes up 2 to 3 per cent of global stock market value, he said.
“Canada just hasn’t been on the radar.”
Now, with tariffs and economic instability shaking even the most established investment markets, Canada is drawing interest for its relative predictability, its natural resources and energy infrastructure. Even its proximity to the U.S., which is still the world’s most important investment market, “is a plus,” Mr. Graham said.
“I think Canada’s got a moment here,” he added. “It’s got a moment where it’s got people’s attention.”
The challenge for Canada will be to move fast enough to secure contracts and funding commitments before investors look elsewhere. Mr. Graham told a lunchtime audience Monday that he is “encouraged by the speed at which we’re trying to move,” but that investment capital is fluid and can “disappear overnight.”
The U.S. is moving at pace with new measures to speed up tax deductions for capital expenditures, he said. “Europe is saying all the right things also.”
Canada’s largest pension funds are also under pressure to invest more money domestically. Several pension fund CEOs have signalled they are eager to help fund major, nation-building projects that Ottawa is prioritizing – if the terms are acceptable.
Early talks with the federal government have focused on what would be interesting to pension funds, he said. And political leaders can attract more interest by removing friction and “unnecessary complexity” to make it easier to invest money in large infrastructure and energy projects.
“We’re super optimistic about what’s going on right now,” Mr. Graham said. “But to be clear, we’re also not policymakers, so we’re not involved in picking the projects.”
One of the most acute sticking points is the awareness among long-term investors, such as pension funds and asset managers, that “policy priorities ebb and flow,” he said.
As Ottawa tries to roll out a list of major national projects with shorter timelines to approval, investors are looking for signals that the conditions will stay in place to make multibillion dollar investments pay off over the long run.
“A few years ago, the policy priority was EV battery makers,” Mr. Graham said.
The CPPIB invested US$55-million as part of hundreds of millions of dollars of loans that four major Canadian pension funds made to Swedish-based battery maker Northvolt AB. The company filed for bankruptcy protection last year, leaving its investors facing losses.
“So you’ve got to be comfortable with every position you put in the portfolio,” he said.
Bloomberg also reports that Canada Pension Plan Investment Board is wary of the surge in the US stock market, which is too heavily concentrated in a handful of big technology firms, according to chief executive officer, John Graham.
I do not have access to John speech but love the way he starts it by noting this son just graduated from university, landed his first job and he took the time to talk to him about RRSPs, TFSAs and the Canada Pension Plan.
He explained to him why inter-generational equity is important and how the CPP Fund plays it part to make sure Canadians retire in dignity and security.
He then goes into the history of the CPP Fund, its mandate and why they solely focus on delivering on the pension promise so all Canadians can retire in security.
He discusses how they invest roughly 12-13% of their portfolio in Canada across public and private markets and they are focusing on energy and digital infrastructure.
"Capital is fluid and mercenary. It will always flow to opportunities of least resistance. To opportunities in well-functioning, stable, predictable and transparent economies. To opportunities in unified markets that eliminate unnecessary friction.”
John is confident our policymakers can unite and attract capital from all over the world if they show unity and coordination.
He states leaders have to show courage and act with discipline, maintaining a long-term perspective.
Anyway, this is a fantastic speech, will ask John Graham and Frank Switzer to send it to me.
Please take the time to listen to his remarks below as well as his discussion with Rita Trichur, senior business writer and columnist at the Globe and Mail.
Below, John Graham, President & CEO of CPP Investments joins Canadian Club Toronto where he reflects on the factors that have shaped the CPP Fund’s growth, long-term stability and success.
Also, WONK host Amanda Lang talks to Minister of Energy and Natural Resources Tim Hodgson about attracting capital, the Major Projects Office, Indigenous economic participation and why he sees opportunity ahead.
Tim Hodgson is Prime Minister Carney's closest confidant, an incredibly sharp and capable minister (probably the most competent minister Canada has ever had or among an elite few) and he has his work cut out for him, they all do.
I have some serious concerns about what can possibly be achieved over the next two years, think this government is only now recognizing the daunting challenge they face and the predicament the Trudeau government left them with, but I'm Canadian first and foremost and rooting for their success.
Update: On Tuesday, Frank Switzer at CPP Investments was kind enough to send me John Graham's speech at the Canadian Club Toronto:
Welcome everyone and thank you for joining us today.
The CPP and the CPP reforms were about a lot of things.
About lifting and keeping seniors out of poverty and about making sure tomorrow’s workers aren’t left paying for yesterday’s bills.
That balance: pension security for our parents and opportunity for our kids is one of Canada’s greatest triumphs. It didn’t happen by accident.
It happened because nearly three decades ago, leaders from across the country came together with the courage to act. That’s the story I want to tell you about today.
I’ll also share how CPP Investments is doing and of course, what all this means for investing in Canada. Now I realize pension history may not sound like the most exciting way to spend lunch. But trust me, it’s one of the most visionary public policy success stories in this country’s history. Diving right into that history.
The Canada Pension Plan was created in the mid-60s to solve a real crisis: senior poverty.
Think for a moment about the people who were retiring around that time. They had lived through WWI, WWII and the Great Depression. Those events robbed them of a chance to build savings. So, by the time they aged out of the workforce, they hadn’t earned enough to retire in dignity.
The response was bold and simple: create a pay-as-you-go program. Money would come in from workers and go straight out to retirees. At the beginning, this model worked. Poverty rates among seniors dropped.
But demographics are like a slow-moving freight train: you can’t stop it. By the 80s and 90s the number of workers per retiree began to drop. Fewer kids and longer lifespans meant the pay as you go system was breaking.
In 1966 there were 7.7 workers for every retiree. In 1997 that number was 5.5 to one. Today it’s 3.4 to one and by 2027? It will be closer to 3 to one. If too few workers are paying in, a pay as you go system can’t keep up.
That’s exactly what Canada’s Chief Actuary warned in 1995. That without action, the CPP would be depleted by 2015. Contribution rates would have had to rise ~14% just to keep the lights on. So, Canada stepped up. And what makes this story remarkable: our federal government and the provinces didn’t pass the buck or look for a short-term fix. They partnered to fix it. CPP is a federal and provincial construct. Leaders from across the country, across parties, and across levels of government sat down and made tough, unpopular choices. Choices that would deliver benefits long after their own careers were over. That took courage and cooperation.
Contributions increased, benefits slightly decreased and they created CPP Investments, the organization I am now privileged to serve.
Just imagine how controversial that would have been for politicians. They made choices that were likely hugely unpopular with the electorate at the time.
The reformers of the CPP were driven by three critical public policy objectives:
- To ensure the long-term financial sustainability of the CPP.
- To avoid future volatility in contribution and benefit rates.
- And to the extent possible, reduce intergenerational unfairness.
This led to a simple but powerful design: It created a pool of assets – the CPP Fund – that could be invested professionally with the sole goal of further enhancing the economic sustainability and resilience of the CPP program. And it created CPP Investments as a professional, independent money manager that invests these funds without political influence.
Fast forward to today. The plan is safe and secure for at least the next 75 years, intergenerational fairness has significantly improved, and you and I have a system we can count on. Without that reform, today’s younger Canadians – like my kids and your children, would be paying not only for their retirement but their parents’ too.
Instead, Canada now has a national pension system that is considered the gold standard globally.
These reforms were bold, but good policy only matters if it works in practice. That’s where CPP Investments comes in. Since inception, CPP Investments has grown the CPP Fund to $731 billion. Around $500 billion of that is investment income and was earned around the world, yet it all comes back here to Canada in the form of pensions. To be spent by retirees and their families, in communities across the nation.
Earlier this year, we were ranked as the world’s second-best performing pension fund based on 10-year returns.
This sometimes leads to people asking if we are chasing returns at all costs. Short answer is no, and our mandate is to maximize returns without undue risk of loss. That means focusing on long-term investment returns that support plan sustainability, not short-term outperformance against public benchmarks.
We are focused on building a resilient portfolio across a wide range of macro-economic scenarios, consistent with the policy objectives we were created for. We are not chasing the latest hot market, and in fact, right now we are not chasing US public equity markets, which we believe are too concentrated and would expose the Fund to unacceptable concentration risk.
Last year alone, the Canada Pension Plan paid out $61 billion to 6.6 million Canadians. For many, those monthly cheques are their single largest source of retirement income. For someone who earned around $50,000 a year while working, the CPP today provides about 57% of their retirement income. And let’s be clear — Canadians earned this money.
We contribute into the CPP with a promise in return. A promise that when you retire, you will receive an inflation-protected pension, for as long as you live. You won’t outlive your CPP benefits. Our sole job at CPP Investments, is to do what we can to keep that promise to 22 million Canadians.
When we compare ourselves globally, the strength of Canada’s system is even more apparent. In the United States, Social Security, still a pay-as-you-go plan after 90 years, is projected to face insolvency in 2033 at current benefit levels.
In Canada, the unity of our country in 1997 created a CPP with a solvency horizon for the next 75 years and beyond. That’s why countries around the world ask: how did Canada do this?
It is an achievement we can all take pride in, but now is not the time to take a victory lap and borrow from future benefits to pay today’s bills.
I want to spend some time talking about investing in Canada.
And while we invest globally, the Fund’s capital is also building here at home.
Roughly 12% of the Fund – about $114 billion – is invested in Canada to provide strong investment returns. When Canada offers the right opportunities, we step in. Chances are you see our investments every day. If you drive Highway 407, eat at A&W, shop at Dollarama, or use Shopify’s platform, you’re touching companies we’ve invested in.
We have supported this country’s largest energy producer, Canadian Natural Resources for over a decade…and we’re financing infrastructure of the future – like Cambridge’s new data centre.
These days, we are looking to invest in nation-building projects:
- large scale infrastructure and
- energy systems
And we are not the only ones. Many global investors are eager to put capital to work in Canada. But here’s something I’ve learned from working with the world’s top investors: capital is fluid and mercenary. It will always flow to opportunities of least resistance.
To opportunities in well-functioning, stable, predictable, and transparent economies. To opportunities in unified markets that reduce or eliminate unnecessary friction. And that’s why I’ve been encouraged by what’s happening in Canada recently: policymakers of all political stripes, federally and provincially, working together to unlock this country’s potential.
I am confident they can do it, because they did it before in 1997 with the original pension reforms.
CPP Investments is the product of national unity and Canadians have over $500 billion in investment income to show for it. If Canada can showcase unity and coordination, capital will flow and support the enterprise of our nation.
Not because of rhetoric or emotional appeal. Because capital will find its way to markets that work. That unity and coordination will initiate the nation-building projects Canada requires.
And those are exactly the kind of projects both foreign and domestic investors, including us, are ready to support.
Let me leave you with something that makes me optimistic: Canada’s pension plan works because 28 years ago leaders had the courage to act with discipline and a long-term mindset. They made decisions whose rewards would belong not to them, but to future generations.
That courage and spirit of cooperation delivered something few countries have today: a solvent, stable and globally respected national pension system. And crucially, we are really improving fairness across generations.
Canadians can now face the future with confidence that their pensions will be there – not just for today, but for decades to come. My job is not to reinvent anything, but to carry forward the discipline of the 1997 reformers — to strengthen the pension Canadians rely on today and secure it for the generations that will follow.
Canada solved the pension affordability crisis. That is a Canadian achievement.
It shows what we can accomplish when we work together and put the long term first.
And it is something every Canadian can take pride in – and every generation can count on.
Thank you.
I thank Frank for sending me John's speech, well worth reading it and listening to him deliver it, and take the time to hear his discussion with Rita.
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