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John Graham: Inside the Fund Investing for 22 Million Canadians | Podcast | In Good Company

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John Graham: Inside the Fund Investing for 22 Million Canadians | Podcast | In Good Company

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1300 segments

0:01

Hi everyone. I'm Nicolai Tangen, the CEO

0:03

of the Norwegian sovereign wealth fund.

0:04

And today I'm joined by John Graham, the

0:07

CEO of CPPIB,

0:09

which is the Canadian pension fund,

0:11

basically looking after the savings of

0:13

22 million Canadians.

0:16

Now, CPPIB is one of the most respected

0:19

pension funds in the world, and the

0:21

Canadian model has become a blueprint

0:23

globally.

0:25

Now, what makes John stand out is that

0:27

he is a scientist first who found his

0:29

way into one of the world's great

0:31

financial institutions.

0:32

And I'm really curious to dig in what

0:34

your scientific mindset brings to

0:36

investing, John. So, big thank you for

0:39

joining us.

0:40

>> Well, thank you for having me. Lot to

0:41

cover.

0:42

>> Absolutely. Now, first of all, um

0:45

could you help us understand just what

0:46

the Canadian pension plan is? Just how

0:49

is it different from a fund like ours?

0:52

>> Sure. So, uh CPPIB Investments were the

0:56

third-party asset manager for the Canada

0:58

Pension Plan.

1:00

The Canada Pension Plan is the uh

1:03

mandatory program that all working

1:05

Canadians contribute to. Um so, for it'd

1:08

be somewhat similar if you were in the

1:09

US to to to social security.

1:13

Um so, it's it's meant to provide a

1:15

inflation-protected

1:18

you know, defined benefit for for

1:20

working Canadians.

1:22

>> How big is it?

1:23

>> Today, the fund, the CPP fund, is around

1:27

$800 billion, but it's actually a a

1:30

hybrid plan. So, just one of the things

1:32

in that I think is important to to

1:34

appreciate cuz it really has a big

1:35

influence on how we manage the money,

1:37

is about 30 years ago, the Canadian

1:40

government realized that the CPP,

1:43

um at its current contributions and

1:45

benefit rates, was on a path to be

1:48

exhausted.

1:49

And this was because it was a

1:51

pay-as-you-go program, money comes in,

1:54

immediately goes out,

1:55

and demographics were changing. You

1:57

know, you you had a aging population,

2:01

you had people having fewer kids, people

2:02

living longer. And people living longer

2:04

is obviously a good thing.

2:06

Uh but the plan was on a path to being

2:08

exhausted. So, they restructured the

2:10

plan. They increased the contribution

2:13

rate, modified benefits, and they

2:15

created CPP Investments as

2:17

the money manager to invest the funds,

2:20

the surplus funds that aren't

2:22

immediately needed to pay out benefits.

2:25

Um and I think what's you when we

2:27

started out, that plan is it was about

2:29

15% funded. So, really it was still a

2:32

pay-as-you-go plan. And over time, our

2:35

very first check was $12 million.

2:38

So, we got a check for $12 million uh

2:40

uh about 27 years ago. Today, the plan

2:44

sits about 800 billion.

2:46

And the plan is partially funded,

2:48

meaning that

2:49

>> you are and you are independent from the

2:50

Canadian government?

2:52

>> Yeah.

2:52

>> How how how hard is that to protect that

2:55

independence?

2:56

>> Yeah, we were created to be independent

2:59

with respect to investment

3:00

decision-making, but we're still

3:01

accountable. We still have

3:02

accountabilities cuz we're accountable

3:03

to to all Canadians.

3:05

And I think this is something that the

3:07

Canadian government recognizes is

3:09

important um to have both

3:11

independence with investment

3:12

decision-making.

3:14

And that's enshrined in federal

3:16

legislation. So, when we were when we

3:17

were created, the CPPIB Act basically

3:21

enshrined our mandate to maximize return

3:23

without undue risk of loss. And you

3:25

asked the question, how do we differ

3:27

from, let's say, a sovereign wealth

3:28

fund?

3:29

And I think the big difference is we're

3:31

pension plan, which means that we have

3:33

liabilities.

3:35

>> So, when people when people try to

3:36

replicate the Canadian model, what do

3:37

you say that they get wrong?

3:39

>> What do they get wrong?

3:40

>> Yeah.

3:42

>> First I think the first important thing

3:44

is governance.

3:46

And pretty much all the Canadian plans

3:48

have some similar level of governance in

3:51

that there is independence around

3:53

investment decision-making, but

3:54

obviously accountability for to the key

3:58

stakeholders.

3:59

>> Mhm.

3:59

>> And that independence around investment

4:01

decision-making provides the flexibility

4:03

or to build a investment organization

4:08

that has a lot of levers to pull for

4:09

driving returns.

4:11

Public versus private, active versus

4:13

passive, domestic versus global. And I

4:17

think having I'm a big believer in

4:19

optionality and having those various

4:21

levers to pull over the long run drives

4:23

value.

4:24

>> And we will get back to to some of them,

4:26

but just in the meantime you got eight

4:29

pension funds in

4:30

in Canada, right? Sometimes called the

4:32

Maple Eight.

4:33

So how how did Canada develop this

4:35

approach?

4:36

>> Yeah, and I there's there's definitely

4:38

more than eight, but there is a term

4:40

term Maple Eight that uh really captures

4:43

probably the eight biggest. There's now

4:45

Maple Nine, so there's another plan kind

4:47

of kind of coming in to Maple Nine, and

4:49

sometimes it's Maple 10.

4:50

>> Is it good Is it good to have so many

4:52

pension funds?

4:53

>> It's good. It's good. And and you know,

4:55

I I I think the they're very well run.

4:57

They they have

4:59

uh have had good governance, good

5:01

performance.

5:03

I've never been a huge fan of the Maple

5:05

Eight concept because I think one thing

5:06

it does miss

5:08

is that we're all a little bit different

5:10

in that we all have different liability

5:12

streams. We're all pension plans.

5:14

So we all have liability streams. Like

5:15

at the end of the day, we're investing

5:18

the money

5:19

to meet the pension promise.

5:21

So in Canada, across 22 million

5:24

Canadians, a promise has been made,

5:26

right? So at every paycheck you have a

5:29

deduction that says CPP.

5:32

And what you get in return for that

5:34

deduction is a promise. A promise that

5:36

when you retire, you're going to get a a

5:38

pension.

5:39

>> Mhm.

5:40

>> And our job is to make sure that we meet

5:42

that promise. So

5:43

>> So in order to meet that promise, you

5:45

need to invest well, right? So, here you

5:48

are 800 billion.

5:50

Just how do you how do you decide where

5:52

the money goes? How do you decide how to

5:53

split the asset classes?

5:55

>> So, so we are very linked to our

6:00

our mandate. Max our mandate enshrined

6:02

in federal legislation

6:04

is to maximize return without undue risk

6:06

of loss accounting for the factors that

6:08

impact the funding of the plan.

6:11

That's our mandate. And so they you got

6:13

to invest the money

6:15

maximize return, try to grow the funding

6:17

ratio of the of the plan

6:20

and make sure that we can meet these

6:24

obligations or these promises that have

6:26

been made.

6:27

>> And you and you don't have like we have

6:28

a mandate where which the ministry gives

6:30

us which tells us, you know, how much

6:32

shares, how much bonds. You don't have

6:34

that.

6:35

>> We don't have that. Literally our

6:37

mandate is is maximize return without

6:39

undue risk of loss taking into account

6:41

the factors that impact the plan.

6:42

>> So, you know, here here you are John

6:44

Graham 800 billion.

6:47

Go and see what you can do with it.

6:48

>> What started as 12 million and now it's

6:50

800 billion. So, and of that 800 billion

6:53

550 billion is investment income. It it

6:56

does show the power of compounding,

6:57

right? So,

6:58

70% of the fund is

7:01

investment income.

7:02

And so we only, you know, quote unquote

7:04

own the entirety of the investment

7:07

process. So, to be a little bit

7:09

technical, we take that and think

7:12

there's kind of three big decisions we

7:13

make and

7:16

we take a total portfolio approach and

7:18

and fundamentally we try to maximize the

7:20

total return of the total portfolio. So,

7:23

the first big decision, what level of

7:25

risk are we going to take?

7:27

What level of risk will maximize return

7:30

without undue risk of loss? How do we

7:32

thread that needle of

7:34

taking our time horizon? So,

7:36

recognizing, and I think this is really

7:38

important,

7:39

we're pension plan, we're not a wealth

7:41

maximizing vehicle.

7:43

>> What's the difference between the two?

7:45

>> That we will at time, and I would

7:47

actually argue we may be in that time

7:49

right now with the concentration risk in

7:51

the markets,

7:52

there will be times when we are not

7:54

looking to fully participate in the

7:56

market in parts of the market where we

7:58

feel there might be an undue risk of

8:00

loss.

8:01

So,

8:03

we are

8:04

not always maximizing. When we think

8:07

about the upside and the downside,

8:09

there are times when we may give up a

8:11

little bit of upside to protect the

8:13

downside because we think at this moment

8:15

in time that's more important for

8:17

um thinking about the liability stream

8:20

or the liabilities we have uh to to

8:23

to meet.

8:24

So,

8:26

risk What level of risk are we going to

8:27

take? That's number one.

8:29

Two, asset classes. How are we going to

8:31

diversify? And you'll hear me say this

8:33

probably a few times, diversification is

8:36

an act of humility. We don't know.

8:38

And and and we do firmly believe in

8:40

diversifying across asset classes and

8:43

geographies

8:44

as ultimately a risk management tool.

8:47

Um the third decision is security

8:48

selection.

8:50

Um what which companies

8:52

which assets do we want in the

8:54

portfolio?

8:55

>> Now, you uh

8:56

you don't operate in asset silos, is

8:58

that right? Just how do you How do you

8:59

think about the various assets?

9:01

[clears throat]

9:01

>> Yeah, so in the total portfolio

9:03

approach, we we we definitely try to do

9:06

our best not to get totally siloed into

9:08

thinking about asset classes and having

9:10

fixed hard allocations into asset

9:12

classes or into geographies. We think in

9:15

factor space. We think about what's the

9:18

real economic exposure we're bringing

9:20

into the portfolio, whether it be, you

9:23

know, duration, inflation sensitivity,

9:25

whatever it may be,

9:27

um

9:27

knowing that asset class labels can be a

9:29

little bit misleading. I mean,

9:30

personally,

9:32

I don't view public equity and private

9:34

equity as as different asset classes.

9:37

I view them as different kind of

9:38

ownership structures within equities

9:41

and they have different

9:43

ways of behaving through

9:45

through through the cycle. So, we try

9:47

not to get hard allocations into asset

9:51

classes, hard allocations into countries

9:53

cuz that can lead to some strange

9:55

behavior when you're trying to rebalance

9:56

the portfolio, but think about what are

9:58

the correlations between the different

10:01

asset classes. That being said, we are

10:03

organized by asset class, so we do have

10:05

kind of soft allocations into asset

10:08

classes and we do ask people

10:10

into the execution side to really

10:13

understand their asset class, whether

10:14

that be real estate or infrastructure,

10:16

or credit, and to build portfolios in

10:18

their asset class.

10:19

>> What are the kind of things you don't

10:20

do?

10:21

>> We don't do.

10:22

>> Mhm.

10:23

>> Well, we don't do

10:25

um

10:27

There's very little we don't do uh at at

10:31

800 billion. And it's probably similar

10:33

for you, but there's but there's very

10:34

little we don't do in that we also

10:37

believe that we do not follow a path of

10:41

blanket divestment.

10:42

So, take oil and gas. We have continued

10:46

to invest in oil and gas. We have

10:47

continued to support the oil and gas

10:49

industry. We do not have a uh we never

10:53

take a path of blanket divestment. So,

10:56

there's no industry that that's off side

10:59

for us. Now, there's some things we make

11:01

a deliberate choice not to do. So, take

11:05

from a geography perspective. We're

11:07

really We We probably have exposure to

11:08

50 countries around the world, but we're

11:10

probably only really active in 12

11:13

because we just can't really be

11:15

experts in every country around the

11:17

world. So, we will prioritize and decide

11:19

that we're going to really focus maybe

11:20

in on 12.

11:22

With respect to asset classes, we've

11:23

chosen the big ones, but you know, one

11:26

thing we've never done is crypto. We've

11:28

never directly invested in crypto. And I

11:29

don't know how much money you want to

11:30

spend on that.

11:31

>> been that's been pretty good lately not

11:32

to be in that one.

11:34

But uh

11:34

um one asset class where you are where

11:36

we are not is uh private assets, so

11:38

private equity,

11:39

private credit. Um

11:41

Now, you are You have one of the largest

11:43

private market portfolios of anybody in

11:45

the world. And so, what is your view on

11:47

that asset class just now?

11:49

>> Yeah, so I think we take a long-term

11:51

view. And you know, private equity

11:54

undoubtedly has had a more challenging

11:56

couple years.

11:58

Um we can get into that. But if I look

12:00

over the past 10 15 years, it's been one

12:02

of the biggest drivers of return for the

12:04

for the portfolio. I personally continue

12:07

to be a believer in the in the pri- the

12:10

private governance model. I think for

12:13

certain companies at certain times in

12:15

their life cycle,

12:16

private ownership makes a lot of sense.

12:19

Um getting out of the scrutiny of the

12:20

public markets,

12:22

um hav- having the investors be very

12:25

actively engaged from a governance

12:27

perspective [clears throat]

12:27

on the board of directors. I think

12:29

there's at certain points in time,

12:31

private ownership makes a lot of sense.

12:33

So, we continue to be constructive on

12:36

private equity. Recognizing though that

12:37

right now, you know, the returns has

12:39

been well documented over the past

12:41

couple years have not been,

12:43

you know, at expectations. But if I look

12:45

over 10 15 years, it's it's been a big

12:47

driver of value for CPP Investments.

12:50

>> And you you measure your returns against

12:52

um

12:54

kind of a benchmark portfolio which

12:55

consists of Is it bonds and equities?

12:59

>> Yeah. So, we have a benchmark portfolio

13:01

that is basically matches kind of the

13:05

big asset classes that we invest in. So,

13:07

it's bonds and equities, but there is

13:08

also some sector specific indices in

13:10

there.

13:11

Whether it be real estate, credit,

13:15

uh infrastructure, energy.

13:18

And you know, I think right now, looking

13:21

at at private equity, I mean, one of the

13:22

challenges we have is the the public

13:25

markets, especially the broader markets,

13:27

are just very concentrated and very

13:30

concentrated into a a handful of

13:33

US-based technology stocks.

13:36

>> Yeah, which is not what our portfolio

13:37

looks like.

13:38

>> No, no. No, no.

13:39

Uh this is a a challenge for most active

13:42

[clears throat]

13:43

managers uh these days. Now, uh you

13:46

manage a lot of your uh private exposure

13:48

internally.

13:50

Uh how do you make the choice between

13:52

outsourcing that

13:54

uh versus uh actually managing it

13:56

yourself?

13:57

>> Yeah, and and uh the way I describe our

13:59

approach is it's a partnership model.

14:01

So, for take private equity, we we do

14:05

invest in um private equity managers

14:08

around the world who we think are the

14:10

best in and the best investors in their

14:12

space.

14:13

And then we do co-investing and

14:15

co-underwriting

14:16

with them.

14:18

Some other programs, like infrastructure

14:20

and energy, historically, we may have

14:22

been a little bit more direct, but we

14:23

certainly do have some kind of external

14:26

relationships. And here's a case for me

14:28

though

14:29

that uh

14:30

these are choices.

14:32

These are choices the organization

14:34

makes.

14:35

And I come back to what we're solving

14:37

for. We're solving to maximize the total

14:40

return of the total portfolio.

14:42

So, we are you know, we see value in

14:45

having direct and and fund

14:47

relationships.

14:48

Um exactly how much we have of each is

14:51

just going to be based on where we get

14:52

the best returns.

14:54

>> Who does better? Your external managers

14:56

or your guy your internal guys?

14:58

>> Well, you have to think about often why

15:00

you're doing the internal. So, the

15:03

the internal

15:05

you office often have co-investing and

15:07

co-writing underwriting at kind of

15:10

advantageous economics. So, you're not

15:12

paying the the the the

15:13

>> [laughter]

15:13

>> the full fee and promote or carry the

15:16

performance fee.

15:17

So, I think it's hard to say who does

15:18

better because

15:20

your internal teams are benefiting from

15:22

the origination and the asset management

15:24

of the external teams.

15:25

>> Mhm.

15:26

>> Um so, they're not totally separable,

15:28

right? Like

15:29

they don't compete with each other. The

15:31

internal teams are actually building off

15:33

of the uh

15:35

the external um

15:38

the external managers. So,

15:40

I actually think what's important is to

15:42

mash them together and look at the

15:44

blended returns of two as opposed to

15:46

thinking of them as two separate

15:47

competing

15:48

kind of investment strategies.

15:51

>> Absolutely. Now, John um Canada and

15:53

Norway compete in ice hockey. Um but but

15:56

let's not talk about that.

15:57

>> Oh, really? They do?

15:57

>> But no, well, I I saw you there. But we

15:59

also But more importantly, we we we we

16:03

compete in uh transparency, right?

16:05

Because there is just uh FYI for the for

16:08

the listeners, there is the World

16:09

Championship in transparency. And and uh

16:12

and you guys and us, we typically uh you

16:15

know, together are at the top of the the

16:17

the league table here.

16:18

>> Yeah.

16:19

>> So, why why in your mind why is

16:20

transparency important?

16:22

>> Yeah, and and and I and I I will concede

16:24

I think you've gotten the gold medal the

16:25

last couple years.

16:27

>> Well, I think we're doing

16:28

we're we're both doing really well here.

16:30

>> We're tied for two.

16:31

So, for for us at at CPP Investments,

16:34

transparency is something that we take

16:35

very seriously. And part of it comes

16:37

back to our purpose and and who we are.

16:41

We're a you know, mandatory retirement

16:44

program that all Canadians contribute

16:45

to. We manage $800 billion of what is

16:48

largely a

16:51

you know, public good here in in Canada.

16:54

So, we have taken an approach to

16:57

disclose at a level that isn't even

16:59

beyond what is required under um the

17:02

CPPIB Act.

17:04

With a view that Canadians should

17:06

understand how their money is being uh

17:09

how the money is being invested

17:11

and uh how the cost of base that we have

17:14

within within CPP Investments. So,

17:16

within our quarterly statements, we

17:18

release pretty much every

17:20

investment we make. So, we have

17:22

transparency there. And we provide a lot

17:25

of information on how we run the fund,

17:29

our various frameworks for running the

17:32

fund. And we think it's important

17:33

because of who we are.

17:35

>> Yeah. Yeah.

17:36

John, let's spend a few moments on the

17:38

geopolitics. How much of your

17:39

investments are are in Canada?

17:42

>> We have about 12% of the portfolio in

17:44

Canada.

17:45

>> Yeah. And what about the US?

17:48

>> We are it kind of ebbs and flows again.

17:50

We don't have hard allocations.

17:53

45% plus or minus a few percent. It It

17:56

can get up to 50, but

17:58

>> [clears throat]

17:59

>> you're probably you're probably similar

18:00

in that the US has been an incredible

18:02

market over the past 10 years.

18:03

>> Absolutely. Absolutely.

18:04

>> And And our one of our biggest

18:06

challenges is if if we don't manage it,

18:09

it'll just keep growing and growing and

18:10

growing as part of the portfolio. So, we

18:12

actually it's one area we do try to

18:14

manage around that 45 to 50-ish

18:16

percentage range.

18:18

>> Is there any

18:20

kind of political

18:22

what should we say not interference, but

18:23

any political

18:25

indications

18:27

in terms of trying to get you to reduce

18:30

your US exposure?

18:32

>> No. No. I mean, certainly I think the

18:36

people would like to see us invest more

18:38

domestically in in some areas,

18:40

especially right now. And I will say

18:42

from a Canadian perspective, Canada's

18:44

looking more interesting than it has in

18:46

in years. And And part of that

18:48

>> is that?

18:49

>> Yeah, and part of that is the ambition.

18:51

You know, there's an ambition at the

18:52

provincial level, at the federal level

18:55

to build things and to build big things.

18:58

And pension funds like us like

19:00

infrastructure. We like big assets that

19:03

are cash generative. So, there's

19:05

definitely a lot more kind of curiosity

19:08

about investing in Canada than it has

19:10

been in

19:13

in years. So,

19:15

people certainly would like to see us

19:16

invest more in Canada and and we're

19:19

actively looking at investment

19:20

opportunities, but we'll always do it

19:22

with our mandate in mind. You know, what

19:24

when we were created.

19:25

>> The the government is trying to attract

19:27

foreign investors.

19:29

Do you think you would always get kind

19:31

of the goodies?

19:33

The best bits?

19:34

>> No, I don't. I actually don't and I

19:36

think this this is

19:38

I think this

19:39

I look at the US.

19:41

The US is the most competitive

19:44

market in the world. It's most

19:45

competitive capital market in the world

19:47

and it's been delivering the best

19:48

returns.

19:50

Competitive capital is a good thing.

19:54

The ambition this country has in Canada

19:55

for building things, it's going to

19:57

require

19:59

domestic and foreign capital.

20:01

And we're a big advocate that that

20:04

we should seek competition for capital.

20:05

It'll drive the cost of capital down and

20:08

it'll ultimately lead to to better

20:10

investment opportunities. You'd ask

20:11

about the US. I mean, people appreciate

20:13

that

20:14

it's a it's from a market cap

20:16

perspective, I think it's what 70 65 70%

20:19

of the the global equity markets. So,

20:21

even at 45% there's an argument that

20:23

we're actually underweight the US.

20:25

>> What about China?

20:28

>> Yeah.

20:29

It's an interesting question and and

20:31

China is a market where we've been

20:33

active for quite a while. You know, my

20:35

my predecessors were incredibly

20:37

knowledgeable and well connected into in

20:40

into China.

20:41

Our exposure to China has declined over

20:43

the past few years.

20:45

Part of that is because the the rest of

20:46

the portfolio has grown around it. You

20:48

know, there there hasn't been a we

20:50

haven't been selling assets per se, but

20:52

the the rest of the portfolio has been

20:54

growing around it.

20:56

We maintain a a

20:59

reasonable I think allocation

21:01

into China. My personal view is and

21:04

if you want to be a long-term investor,

21:06

you have

21:08

you have to have some level of

21:10

investment in the world's second largest

21:12

economy.

21:13

Um, you also have to have a certain

21:14

amount of knowledge about the world's

21:16

second largest economy because it has

21:18

influence, uh,

21:19

real influence around the globe.

21:22

So, we've maintained our understanding,

21:25

our some of our relationships in the in

21:27

the market. Um,

21:29

I think for China it's always a case of

21:31

of how much

21:32

of the portfolio and then how. What

21:35

industries, um, what sectors do we want

21:38

to, uh, invest in? Knowing that there's

21:40

some areas like obviously be very

21:42

sensitive to get into defense or to get

21:44

into dual-use technologies. So, you have

21:45

to think about

21:46

how you want to invest.

21:49

>> Yeah.

21:51

Talking about, uh, that, how does AI

21:54

change the way that you run your

21:55

organization?

21:57

>> That's a good question. That's a good

21:58

question. I mean, I think we're I think

22:00

we're figuring it out like lots of

22:02

people.

22:03

Um, and and and probably go through lots

22:06

of

22:06

peaks and troughs in thinking about the

22:09

the impact of of AI.

22:12

As an organization,

22:15

we certainly have prioritized literacy

22:18

and fluency.

22:20

Certainly prioritized trying to have a

22:24

employee base that is very fluent in the

22:27

tools and the technologies.

22:29

So, we have rolled out multiple LLMs to

22:32

every single employee in the

22:34

organization.

22:36

And we have provided, uh, training.

22:39

We've provided courses and in fact, um,

22:41

we have these kind of bootcamps that

22:44

employees can can sign up for. So, we've

22:47

seen pretty good adoption, pretty good,

22:50

uh,

22:52

you know, I think actually very good

22:53

adoption on at the grassroots level of

22:56

from AI.

22:59

More senior level, there's probably half

23:01

a dozen processes we're thinking through

23:05

on where can we really embed AI to do it

23:09

more efficiently, more effectively, but

23:11

a little bit more from the operations

23:13

side.

23:15

Has AI made us a better investor?

23:18

Have we made better investment decisions

23:20

because of AI?

23:22

At this point, TBD. At this point,

23:26

unclear.

23:28

But we are dedicating a lot of time and

23:32

uh effort to

23:33

uh figuring that out.

23:35

>> When you see when you see 10 years out,

23:37

how do you think it will change the way

23:38

you work?

23:40

>> Yeah. That's the one thing, too, that um

23:43

as we think about AI, and I do believe

23:44

the organization has really tried to

23:46

adopt it, and we we've given people a

23:47

lot of license to to try to use in their

23:49

daily life, and encourage them to just

23:50

be more efficient.

23:52

And I don't know if this is AI or just

23:54

good old-fashioned process optimization,

23:57

but over the past 3-4 years,

24:00

we at CPP Investments,

24:03

we have fewer employees than we did 3

24:05

years ago. Not by a lot.

24:07

Let's call it basically flat, but we

24:09

have about 300 billion more of assets.

24:12

Um so, I think we're more efficient. And

24:14

And has AI contributed to that?

24:16

Probably. AI's been

24:19

contributed to that a little bit, or or

24:20

at least has kind of put a fire under

24:22

people's feet to to to think about

24:24

efficiency.

24:26

10 years from now, where my mind is,

24:28

like I'm not in the place of we we

24:31

should stop hiring juniors. I think it's

24:33

madness to stop hiring juniors, because

24:35

I think

24:35

>> I I agree. I agree.

24:36

>> Cuz 10 years from now, they're going to

24:38

be the future leaders of the

24:39

organization, and, you know,

24:42

unless I've made terrible life choices,

24:43

I won't be here 10-15 years from now.

24:46

So, so we're going to keep hiring

24:47

juniors.

24:49

What I think this allows us to do is

24:50

just get operational leverage. I don't

24:52

see the organization from a people

24:54

perspective being a lot smaller,

24:56

um

24:57

but what I do see is we can add hundreds

24:59

of billions of assets without really um

25:03

adding a huge amount of of cost or or or

25:06

people.

25:07

And will it help us make better

25:10

investment decisions?

25:13

I think I'm still TBD on that. I don't

25:14

know what your perspective is. I'm still

25:16

TBD as to

25:18

it'll help us make faster decisions,

25:20

yes. Will it help us make better

25:22

decisions?

25:24

TBD.

25:25

>> Yeah, no I

25:26

I would disagree with you. I would

25:28

disagree with you.

25:29

Let's spend a few minutes on you as a

25:32

leader.

25:33

Um, how do you think your scientific

25:34

background has formed you as a leader?

25:37

>> [snorts]

25:38

>> Yeah, and and probably formed as a in a

25:40

permanent investment perspective.

25:43

Wait a second.

25:45

There's not many things I know in life

25:47

with certainty.

25:49

But one of the things I know with

25:51

certainty is I'm not a scientist

25:53

anymore.

25:55

Investing is not science.

25:58

Even um

26:00

even though I'll see these incredibly

26:02

sophisticated models, these incredibly

26:05

quantitative approaches,

26:08

investing, I believe, is not science.

26:11

And And the reason I

26:12

>> If it's If it's not science, what is it?

26:14

>> It's a little bit of art and science.

26:16

It's a It's a quantitative art.

26:18

>> And what kind of art is it?

26:20

>> [laughter]

26:21

>> But

26:22

it's an art that requires judgment. It's

26:24

an art that requires experience and an

26:26

art that that actually does require, I

26:28

think, and that's a little bit of why

26:29

with AI that I'm I'm I'm I'm cautious on

26:31

whether it'll help us make better

26:32

decisions. I don't know. It may.

26:35

Is in science, and I I was an

26:37

experimental scientist, right?

26:39

We could do an experiment in

26:42

Toronto or in the States and someone

26:44

could replicate that in

26:46

uh

26:47

Japan and they could replicate it in 5

26:49

years from now and 10 years from now.

26:51

Investing is this living ecosystem

26:53

that's changing every day.

26:55

And our models for

26:59

which were were CBB Investments I

27:01

describe as a very evidence-based,

27:03

probably quite quantitative

27:05

organization.

27:06

And I believe it's the right approach

27:07

and that it helps us

27:09

think through it, but at the end of the

27:10

day they are just

27:12

they're our best guess at how the the

27:14

world is going to unfold and

27:16

until someone gives me data on the

27:18

future,

27:20

we are still trying to forecast out the

27:22

future with a a certain amount of

27:26

uncertainty.

27:27

>> And

27:27

>> [clears throat]

27:28

>> to run to run a company in

27:32

in that environment, what are the most

27:34

important leadership principles you

27:35

have?

27:37

>> Yeah, so one of the things I've learned

27:38

and probably learned the hard way

27:40

through my career,

27:43

um and I do believe this is

27:47

every leader has a certain

27:49

kind of call it a preferred habitat.

27:52

Every every leader has a style that is

27:55

really reflective of who they are and

27:57

how they want to approach a problem,

27:58

whether you're a

28:00

super empathetic leader, whether you're

28:02

a pacesetter, a taskmaster, whatever it

28:04

is.

28:05

I have learned that at certain times you

28:07

need to be situationally aware.

28:10

And whether it's the what's going on at

28:12

the time or whether it's and sometimes

28:15

the individual and being able to flex

28:17

the leadership style a little bit, not

28:19

losing sight of the of the mandate, not

28:21

losing sight of the mission and where

28:22

you want to go,

28:24

but being able to flex a little bit on

28:26

what you're

28:28

how you're going to approach it, you

28:29

know, I

28:30

>> Tell me tell tell me about tell me about

28:32

a time you really flexed it.

28:34

>> Sure, I'd say COVID.

28:35

Um

28:37

when

28:38

people were scared,

28:40

huge amount of uncertainty, people were

28:42

worried about their health,

28:44

worried about their um

28:47

jobs.

28:48

And

28:50

I think we needed to lean into empathy

28:52

at that time.

28:54

Um and and I think we did lean into

28:56

empathy.

28:57

>> Did that come na- Did that come

28:58

naturally to you?

29:00

>> Well,

29:01

I'm probably a little bit more of a

29:02

pacesetter. I'm probably someone who

29:04

also is a little bit more like even

29:05

coming back to COVID, I'm definitely

29:07

someone who is more of an in-office

29:08

person who believes that we need to be

29:10

in the in the office. And I've had to

29:13

you know, modify my approach a little

29:14

bit to make sure that um

29:18

we still give people agency and we still

29:19

give people a feeling that they have

29:21

that they're empowered to make decisions

29:23

around their around their careers.

29:26

>> Now, our uh listeners are

29:29

uh when we um when we kind of poll them

29:32

and ask them how they want to What do

29:34

What do they want to have more in the

29:35

poll calls? They say they want to hear

29:37

more about failures, you know? They only

29:39

talk about successes and everything is

29:40

so great and

29:42

uh you know, tell me about

29:45

some of your biggest mistakes in life.

29:46

>> So, my big failures?

29:48

>> Yeah.

29:49

>> Okay. Well, I think as you know, in when

29:51

in in investing, you you you do have the

29:54

opportunity to have failures.

29:55

>> How tough?

29:56

>> And you you you have the opportunity to

29:58

be humbled.

30:00

And any investor who says they haven't

30:02

been humbled um

30:05

is is probably not either taking a lot

30:07

of risk or is is not being overly

30:09

uh truthful.

30:11

So, certainly some of the investments

30:12

I've been actively engaged on um

30:16

have not turned out as as planned. So,

30:19

what have I learned from that?

30:22

One of the things and one of the things

30:23

I try to tell our our our younger

30:24

colleagues too, which I do believe, is

30:26

you

30:27

you can't diligence

30:30

a bad investment into a good investment.

30:34

Spending another week

30:36

is is not going to turn a fundamentally

30:38

bad investment into a good investment.

30:41

And in fact,

30:42

you you you may just convince yourself

30:45

that it is.

30:47

Um and sometimes

30:50

you have to know when to quit.

30:52

And you have to know when to back away

30:54

from uh an investment. If I think about

30:56

where

30:59

mistakes I made and failures I had,

31:01

just this belief that if you just did

31:03

more work, if you just structured it, or

31:05

you could take a bad investment, if you

31:07

could just structure it a little bit

31:08

more, you could turn it into a good

31:09

investment.

31:10

>> What's the worst one you had?

31:12

>> My worst I'm not going to name the name

31:13

of it.

31:14

>> [laughter]

31:16

>> What about What about on the personal

31:18

level? What about like your personal

31:19

mistake?

31:21

>> The biggest failure on the personal

31:22

level?

31:22

>> Yeah.

31:24

>> I think the one thing we all learned too

31:25

in

31:28

in in in in in leadership roles that

31:32

getting the right team around you is the

31:34

most important is one of the most

31:36

important things.

31:37

>> Mhm.

31:38

>> Having a senior team that is aligned to

31:40

where you want to go

31:42

that is as bought into the vision and

31:45

the mandate of the of the organization

31:48

and will truly act as team one. Will be

31:50

there to support each other and be there

31:52

to support the um

31:54

the organization.

31:56

And I think you also have to realize

31:57

that when it comes to hiring people,

31:59

when it comes to the teams,

32:02

you never get it perfectly right.

32:04

Uh and and

32:06

so I think one of the most important

32:07

things is to

32:11

make sure that you get your right team

32:14

in place.

32:15

>> And were you too slow in doing that?

32:17

>> I think like most people, you end up

32:19

being too slow.

32:20

>> Yeah.

32:21

>> You know, if if I ask leaders what are

32:23

some of their biggest regrets,

32:25

is that they waited too long to get

32:26

their team in place.

32:27

>> Mhm.

32:28

>> Um

32:30

and

32:32

guidance I give new CEOs is this is is

32:35

of the first things you should do.

32:37

Is when that one year anniversary hits,

32:38

you should be able to look around your

32:39

senior team and say this is exactly who

32:41

I want with me at this point. Because

32:43

one thing we've also found is I've been

32:45

in this role for over five years,

32:47

it has gone by in a blink of an eye.

32:50

>> Absolutely.

32:52

>> [sighs]

32:52

>> Uh same here. I've been close to six.

32:54

It's just like bang, as if we started

32:57

yesterday.

32:58

Now, um

32:59

tell me about the culture. What do you

33:01

How would you describe the culture?

33:05

>> Yeah, I would describe the culture of

33:06

CPPIB Investments as very

33:09

purpose-driven.

33:10

So, who we are, right? Like it's not

33:12

lost on anybody

33:14

the important work we do for for

33:17

Canadians.

33:18

And every time we do, which I'm sure you

33:20

do, employee engagement surveys and

33:24

various kind of

33:27

employee suggestion kind of uh surveys,

33:31

the one thing that always comes back

33:32

that is a pretty much always our highest

33:34

score

33:35

is that people

33:37

believe in and are are really motivated

33:41

by the purpose of the organization.

33:45

And I think the culture has largely

33:47

formed around that

33:49

the the kind of the purpose-driven

33:51

nature of the of the organization.

33:53

>> How do you set the expectations beyond

33:56

which you perform well above average

33:58

well above expectations and you know,

34:00

the proportion who you think needs to

34:02

improve? Just where you set it.

34:05

>> Yeah. Yeah. And and and I think this is

34:07

one of the challenges um for

34:09

organizations such as such as ours. The

34:12

we are ultimately investing as a

34:14

talent-based organization as a

34:15

talent-based business.

34:17

Um and so I think we have to be very

34:19

rigorous on talent.

34:23

One of the things that I will tell the

34:24

senior leadership in the organization is

34:26

at the end of the week you should be

34:27

able to look at yourself in the mirror

34:29

and and answer two questions. One, that

34:31

you helped drive performance, and two,

34:33

that you help develop the next

34:34

generation of leaders.

34:36

So, every single leader, that that

34:38

performance and people are two of the

34:41

the expectations to be a leader at CPP

34:43

Investments.

34:45

So, I think we take talent development

34:47

very seriously, ensuring that that we

34:49

really do

34:51

um

34:52

have the best people working here. I

34:55

think one of the needles we have to

34:57

thread

34:58

is

35:00

we're this enduring institution, similar

35:01

to you.

35:03

In that

35:04

we have to be here 50 years from now. We

35:06

have to be here 75 years from now.

35:10

We are almost by definition the exact

35:12

opposite of a founder organization.

35:15

We're almost the exact opposite of a

35:17

founder-led culture.

35:19

So

35:21

we have to actually, in some ways,

35:23

institutionalize the culture,

35:25

institutionalize

35:26

the uh investment process.

35:29

And it can never be about the

35:31

individual.

35:32

Um because that's not how you build a

35:35

durable, sustaining organization. It has

35:38

to be about the purpose. It has to be

35:40

about the mission. It has to be about

35:41

the mandate. But, investing is a lot

35:43

about individuals, right? And and

35:45

investing is a lot about, you know, you

35:47

these great investors.

35:49

Um so, what we can't have at CPP

35:52

Investments is a star culture. We

35:55

We can't build investment programs

35:57

around individuals. We have to build

35:59

investment programs around

36:01

organizational strengths and advantages.

36:04

>> What other part of the culture are you

36:05

trying to improve?

36:09

>> Trying to improve the

36:14

I would say a a a little bit on just

36:16

what I what I mentioned.

36:18

And

36:21

it's

36:23

ensuring that everybody really

36:24

understands

36:26

why we're here.

36:28

Um

36:30

we have one fund.

36:31

We have really kind of one mandate to

36:34

maximize return without undue risk of

36:36

loss.

36:37

So, how do we really embed that owner's

36:40

mindset into the organization? How do we

36:43

really embed that one fund mindset into

36:46

the organization to

36:50

ensure that everybody is thinking long

36:52

term and everybody is thinking about how

36:54

do we maximize

36:56

um

36:58

the long-term returns of the of the of

37:00

the portfolio. And

37:03

investing's an interesting

37:05

you know, it's an

37:06

it's a fascinating business to to be in.

37:10

Um

37:11

so, in a lot of organizations, it's very

37:12

much about the individual. They're

37:14

selling almost an individual's kind of

37:17

je ne sais quoi with investing.

37:20

And here at CPP Investments, saying,

37:22

"How do we get people to really buy into

37:25

that one fund mentality?"

37:27

And to really think about how do we

37:29

compound the value of the platform? How

37:31

do we make this organization a more

37:33

valuable platform 5 years from now than

37:35

it is today?

37:37

>> Do you think Do you think the culture is

37:39

a reflection of your own personality?

37:41

>> I actually don't. I actually don't.

37:44

>> And where is it different from you?

37:46

>> Well, well, I'm not sure if if it's

37:48

different because I don't think you can

37:50

lead this organization if if if if you

37:52

cuz I think the culture I set is very

37:54

purpose-driven.

37:55

So, Yeah, but you are you So, are you?

37:57

Yeah, exactly. So, I I think people who

37:59

aren't purpose-driven

38:01

will either self-select out or be

38:03

selected out. You know, I

38:05

I think when when people exit this

38:07

organization,

38:09

um it's often because that they're

38:12

they just aren't aligned to the purpose

38:14

of the of the organization and want to

38:17

do something else. We have a lot of

38:18

amazing uh ex-ex-colleagues. So,

38:22

I think from a from a culture

38:24

perspective, I think the I I I

38:27

you know, it's terrible to say, but I I

38:28

think you got to conform to what the the

38:30

CPPIB culture is if you want to be a

38:33

leader here. And one of the things I

38:34

find amazing, and I I do find this

38:36

amazing, we have seven offices outside

38:39

of Toronto, and and we all get it. We're

38:41

the We're the Canada Pension Plan. It's

38:42

in the name, right? Like Like

38:45

we we are managing

38:47

the

38:47

retirement savings of 22 million

38:50

Canadians.

38:52

But we have colleagues in London, in São

38:54

Paulo, in New York, in Hong Kong, in

38:57

Mumbai, and

38:59

the culture there is remarkably similar.

39:02

Remarkably similar. Like

39:04

they are I'm motivated by the purpose.

39:06

They get it. We spend a lot of time

39:08

talking about it, and

39:10

I bring people to our offices around the

39:12

world, and one of the common things they

39:14

say is like

39:15

wow. Like

39:17

we're in Mumbai, or we're in Hong Kong,

39:20

but you would have thought we were in

39:21

Toronto the way they were talking about

39:22

the purpose of the organization.

39:25

>> Mhm. How do you make sure it doesn't

39:27

become bureaucratic?

39:29

>> Well, that's a very good question, and I

39:32

would say that is a

39:35

constant and um

39:38

requires constant effort, cuz most

39:40

bureaucracy is is put in place for very

39:43

good reasons, and uh made sense at the

39:45

time, and then it just kind of takes on

39:47

a life of its own, like a

39:49

like a Frankenstein that grows over time

39:52

and gets fed and and becomes

39:53

unmanageable at uh at some point.

39:57

I am sure if you ask some of our

39:58

colleagues, they would give you very

40:00

different views on how bureaucratic we

40:02

are. Um

40:04

I think it's something that we try to

40:06

thread that needle.

40:08

Sometimes well, sometimes not as well as

40:11

How do we empower people

40:14

to

40:15

and delegate to people so they can make

40:17

decisions. I am a big believer that

40:19

decisions should be made by the people

40:20

who are closest to the information.

40:22

So, how do we delegate to people, let's

40:24

say on the investment side,

40:26

into the various geographies and asset

40:28

classes so they can make decisions,

40:31

but ensuring that they are aligned, you

40:33

know.

40:34

Delegation without alignment leads to

40:36

chaos. So, how do we make sure they're

40:37

aligned and they understand what we're

40:39

solving for?

40:40

And then, um,

40:43

I have to periodically,

40:45

you know,

40:46

I found in this job like once every so

40:48

many years, kind of hit a pause button

40:51

and do a decluttering of the of the

40:54

bureaucracy because

40:56

uh, I've also learned that it only goes

40:57

one way. It

40:59

>> Absolutely.

40:59

>> you will not naturally, you know,

41:03

de-bureaucratize. [laughter]

41:05

It'll just always add, always add, and

41:06

then every once in a while you got to

41:08

slam that pause button and just start

41:10

purging some of it out and then let it

41:13

to start accumulating again.

41:14

>> Yeah.

41:15

How do you switch off uh, outside work?

41:17

>> Yeah, probably not well. Probably not

41:20

well, but the

41:22

I think we we learn things about

41:23

ourselves. We learn what recharges our

41:25

batteries. It probably speaks to whether

41:27

we're introverts or extroverts

41:30

uh, at heart.

41:30

>> How do you charge?

41:32

>> How do I charge it? I I actually charge,

41:35

I have learned this and you can ask my

41:37

friends and my family.

41:39

I have three dogs.

41:40

I will

41:41

um,

41:43

put on my ear put in my earbuds,

41:45

take the dogs for like a 45-minute walk

41:47

at night, listen to podcasts, listen to

41:50

audiobooks,

41:51

and just in some ways kind of disconnect

41:54

a little bit. It's not the best way

41:57

when you have to recharge by basically

41:59

being alone for 45 minutes at the end of

42:01

the day, but I have found in this role

42:03

that it it's probably what charges the

42:05

battery the fastest.

42:06

>> Hm. What do you listen to?

42:08

>> What do I listen to? So, I don't listen

42:10

to fiction. I don't read fiction.

42:14

Um

42:15

I like to listen to podcasts on history,

42:17

a lot of podcasts on history.

42:20

I came across one recently that was an

42:22

older one called the history of Rome. I

42:23

think it had 170 episodes that I

42:25

listened to. I loved it. Um so a lot on

42:28

history and a lot on business, whether

42:30

it be the Financial Times or Bloomberg,

42:32

the various

42:34

business or investing podcasts.

42:38

>> Mhm.

42:39

Now, we have

42:40

a lot of young listeners. What would be

42:42

your advice to them?

42:44

>> So, yeah, I have two children. They're

42:48

23 and and 20. So,

42:51

um

42:52

I always give the the advice that I give

42:54

them. So, it's it's the [laughter] same

42:56

advice that I give my own

42:57

children who are really just starting

42:59

their professional career.

43:01

And the advice I give them both of them

43:03

is

43:04

keep learning.

43:05

Um

43:07

just always keep learning.

43:09

Yeah.

43:10

Keep learning about your job.

43:12

Um never stagnate. Uh this is one thing

43:15

I've seen in my career is it was people

43:17

going to cruise control and they become

43:18

complacent. And jobs evolve and jobs

43:22

will evolve away from them. So, keep

43:23

learning. Keep learning about your job.

43:26

Keep learning about other jobs that

43:27

people are doing

43:28

in your in your organization.

43:31

Don't be don't be complacent and you are

43:33

going to have to take some ownership of

43:34

your career. And

43:37

think about what you want to do and make

43:38

sure that you know, your value to the

43:41

company is only increasing.

43:43

>> Yeah.

43:44

Well, John, that seems like really sound

43:46

advice. It's been really great talking

43:47

to you.

43:48

Please keep up all the good work on

43:50

behalf of 22 million Canadians.

43:53

>> Great. Thank you very much. I really

43:54

appreciate the opportunity to share the

43:56

story.

44:01

>> Mhm.

Interactive Summary

Nicolai Tangen, CEO of the Norwegian sovereign wealth fund, interviews John Graham, CEO of Canada's CPPIB, to discuss the Canadian pension model. They explore the fund's origins, its investment philosophy, the importance of governance and transparency, and how they navigate global geopolitics, AI implementation, and leadership challenges.

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