Q & A with Mark Wiseman, LLB/MBA 1996, president and CEO of the Canada Pension Plan Investment Board, on taking risks, tough lessons, and why he stays at the CPPIB
This Q & A is the complete version of the one that appears in the Fall/Winter 2012 issue of Nexus. Interview by Lucianna Ciccocioppo. Photo by Michelle Yee.
LC: Given our increasingly aging population, provincial finance ministers are talking about pension reform again. What do you think these reforms should include?
MW: From a structural point of view, Canada has one of the best pensions systems in the world, if you look across each pillar of the system and how they are envisioned to work together. Still, the long-term view of retirement income for many Canadians exposes significant gaps that can largely be attributable to trends in longevity, demographics, shrinking workplace pension coverage, a high household debt-to-income ratios, and, most alarmingly, insufficient personal savings rates. Federal and provincial governments have noted the need to take action to deal with pension-related public policy objectives and their continuing discussions are important for the country. The expansion of the CPP is one of several options open to policy makers. The CPPIB has been, and will continue to be, available to provide insights to these policy makers as their discussions evolve.
LC: The Canada Pension Plan Investment Board (CPPIB) posted a 1.9 percent return for Q2 of fiscal 2013. What happens in the board room when you send out a ‘good news’ press release?
MW: We really don’t focus on quarterly results. It’s one of the things that sets our organization apart from most other investors and, quite frankly, most other corporations. We are managing assets on behalf of 18 million Canadians for generations and so our focus is really on the next quarter century, not the next quarter. Even annual results for us are non-events, relatively speaking. We are really focused on our long term strategy and trying to add value in the long run to the CPP’s reserve fund.
LC: So a slightly negative result wouldn’t really faze you?
MW: It’s par for the course. We are trying to make long term decisions. Bear in mind that, by and large, our results are predominately driven by things that are outside of our control, which is the general return of global financial markets. So our job as managers is to try to out-perform those global financial markets. In some circumstances, that may mean losing less money than the benchmark markets would have lost over the same period. Losing less in a bear market is just as important, in the long run, as out-performing in a time when markets are positive.
LC: Given the current global financial market situation, is there a sense of obligation to try to focus on Canadian equities at all?
MW: On the contrary, one thing we have been doing since we undertook active management of the fund in 2006 is to try to diversify the portfolio globally. Currently, about 10 percent of the portfolio is allocated to Canadian equity. In addition we have a substantial portfolio of Canadian government bonds, bringing total Canadian exposure of the fund to about 40 percent, but Canada represents only about 2-3 percent of global capital markets. This would suggest that we are already overweight in Canada, so we’re continuing to try and diversify the portfolio globally.
LC: So what sector is the CPPIB really interested in these days?
MW: We invest across asset classes and across geographies, around the world. Obviously, as a long term investor, we are able to have certain comparative advantages that other investors don’t have and what we really do is to try to focus on areas that exploit those comparative advantages. Our comparative advantages include our scale, the certainty of our assets, and our long investment horizon. What we are always doing is looking at the areas where we can make additive returns to the Fund, as a result of active management that utilizes these comparative advantages. In part, this means we can look at assets that are somewhat less liquid, so we have a reasonably large portfolio of infrastructure, real estate, private equity, and private debt assets. On the public market side, we have evolved our strategy to spend more time looking at long term value than most traditional investors. The results of these long term strategies don’t necessarily show up in a single quarter but they will, we believe, show up in the long term in terms of value added beyond what passive exposure to global capital markets could provide.
LC: Is there anything that the Board would refuse to invest in?
MW: We don’t invest in things that would be illegal for Canadians to invest in, broadly speaking. For example, Canadians have restrictions on investing in Syria. So we wouldn’t invest in companies that operate in Syria, similarly in Zimbabwe. We are subject to the same investment restrictions to which any Canadian investor would be.
LC: How unique is the CPPIB structure in the world? Do people from other countries call you for advice?
MW: The CPPIB model is a relatively new one. I don’t think it would be too strong to say it’s revered around the world. We’ve testified at the U.S. Congress. We’ve spoken to state and federal leaders in the U.S. We’ve spoken at the OECD. We’ve spoken to various governments around the world, publicly and privately, about the structure of the CPPIB and our investment strategy. I would say the primary difference between CPPIB and most other institutional investors or national institutional investors is our governance structure. And really, our success is driven from our governance structure. It’s unique in that there is a strong recognition that the CPPIB operates at arm’s-length from government. Although the federal and provincial governments have joint responsibility over the Canada Pension Plan, our mandate is singular and very clear, as set out in our CPPIB Act. It’s to maximize returns without undue risk of loss. It’s a very unambiguous mandate for us to fulfill. It means that we are not an instrument of government policy. We are an active management firm, again operating at arm’s-length from government with an independent and expert board of directors, a board that is not made up of political appointees. It is made up of business and financial experts and, as a result, we can really focus on investing the money wisely.
LC: The CPPIB has offices in London and Hong Kong. Where would you like to open an office next?
MW: We are continuing to diversify the organization globally. We are continuing to become not just a Canadian investor that puts money to work abroad but we’re working towards becoming a truly global investment organization. In the long run, that will mean that we will have a presence in more locales. It’s been extremely beneficial to have offices in London and Hong Kong, which each opened in 2008, and we will cautiously look at opening other offices in the near term—a handful of other offices that will give us a better reach in terms of being able to diversify the portfolio in a responsible way.
LC: As you were climbing your career in the investment world, what would you say were some of the tough lessons learned?
MW: I never planned my career. It sort of just happened. But in the investment world, which is quite a bit different than law at some level, you have to take risk. You want to take risk in an intelligent way; you want to understand the risks you are taking, but at the end of the day, you get paid for taking risks. That’s what we are doing at CPPIB—taking risks every day and we hope that we are appropriately rewarded for the risks that we are taking. Taking risks means that you make mistakes, and certainly in my investment career I’ve made mistakes, and learned lessons from taking risks that didn’t pay off or that we weren’t appropriately compensated for. My mantra is: if you are not making mistakes, you are not taking enough risk. What’s really inexcusable, however, is making the same mistake twice.
LC: Which part of your degree would you say you use more each day— the LLB or the MBA or both?
MW: I’ve used a little bit of both. Obviously, I think on the surface the MBA would appear to be more relevant – that’s what I do every day, given the financial nature and numerical nature of the investment business. Having said that, I think that the framework for decision-making, how to think logically and exercise judgment, how to learn about a specific statute or case, or the overall ethos of that logical decision-making process that law school teaches you right from the first day, has been incredibly valuable in my career. The degrees are both equally important and I think a lot of people on the surface would underestimate the importance that legal training has had on my success.
LC: What keeps you at the CPPIB?
MW: I think I have one of the best jobs in the country. Think about a job where, first of all, you have an incredible amount of responsibility investing money on behalf of 18 million of your fellow citizens. You get to operate globally. You work on some of the most important transactions going on around the world with a tremendous amount of scale— and you can do all of that for a public good. You are not just operating at CPPIB to make some nameless, faceless shareholder a little bit more money, or some rich guy richer. Here, we actually help to secure the retirement of 18 million fellow Canadians and they’ve entrusted us with their very, very hard earned money. It’s a tremendous amount of responsibility but it’s also exciting and I feel really good about what I do. I love to go to work every day.
LC: What keeps you up at night?
MW: Everything keeps me up at night. I try to worry less about things that are outside of my control— which is the general day-to-day performance of the financial markets. But, I do worry about how we maintain our competitive advantages in our organization, how we are able to continue to build a team based on a strategy that will add value in what is an increasingly competitive world.
LC: Where do you see yourself in 10 years’ time?
MW: I don’t know. I just started this job not too long ago so I’ll probably still be sitting at the same desk.
LC: Are we in good shape by the time you and I retire?
MW: The CPP is actually in phenomenally good shape. The national pension plan in Canada is the envy of the world and the CPPIB is part of that. The real answer is that it is an ingeniously constructed national pension system and one that is, on an actuarial basis, as Prime Minister Harper said recently, in a surplus. Canadians can rest well assured that their retirement savings given to the CPP are in incredibly good shape and will be there when they retire. In fact, as the chief actuary of Canada recently reported, the CPP is sustainable for at least the next 75 years. So, the CPP will be there even when our children retire.
