Finance Committee on June 11th, 2018

[Mark Machin]

I'd say, again, that in infrastructure we do look at investments, typically, of about $500 million around the world. We have only a limited capacity to evaluate opportunities here in Canada and also around the world, so size opportunities are welcome.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Absolutely, especially, in particular, with regard to your opening remarks, when you talked about the glut of capital and what that means in the world, and about how capital is chasing what we call “real assets” in the investment world: not brownfield opportunities, because they need to be in a different vein, but green field—sorry, brownfield assets, not green field assets.

On that front, for us, the pipeline would diversify our exports markets of Canadian oil away and to markets where demand for oil, frankly, is still increasing. Asia's demand for oil is going to be increasing today. It's going to be increasing tomorrow and for the foreseeable future. It will be great to have those markets served with Canadian resources.

On that front, I just want to pivot and ask how competitive it is. There's a lot of capital out there. That means yields are low and prices are being bid up. How is CPPIB finding that area?

[Mark Machin]

I think your question refers generally to the—

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Investment climate.

[Mark Machin]

—investment climate around the world.

It is a challenge around the world now. With regard to markets, there is volatility that increased in the fourth quarter of our fiscal year, so evaluations have come off a little bit in certain areas around the world. However, it's still a challenge, given the wall of money. For example, in private equity, about $1.7 trillion is chasing private equity opportunities around the world, which is by far the largest pool of uninvested capital we've ever seen. It's a similar story in infrastructure and real estate and across most markets. It's a challenge for us. We need to be patient. We need to be selective. We need to find the right opportunities.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

For the most part, CPPIB's long-short strategy and the other investment measures you've taken.... As someone who's worked on the street and follows the investment industry quite closely, I applaud your returns. I applaud your sustainability. Sustainability is difficult. The typewriter was sustainable for a period of time, but we don't use the typewriter anymore. Even on the renewable energy front, there are a lot of renewable energy companies that were first movers but are no longer in existence, so in terms of your returns, I applaud the team down there and the strides that you have made, and so forth.

With regard to the enhanced CPP that we put in place that will benefit literally millions of Canadians starting in 2019, will it be difficult to place those funds for investment purposes?

[Mark Machin]

With regard to the additional CPP, it gradually builds up over a number of years. I think the office of the chief actuary anticipates about $1.5 billion of additional money in that first year, and it gradually increases after that.

We don't think it's going to be a challenge to diversify appropriately and invest that money prudently and carefully. I think that while today, as I said on the specific private assets, markets are fully priced in many cases, over time we'll be able to find sufficient value and appropriate destinations for that capital.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Chair.

[The Chair, Liberal, Wayne Easter]

We have a quick question from Mr. Dusseault and a quick question from Mr. Poilievre, and then we'll close.

I did have one question. It relates to the Canada Pension Plan Investment Board Act. Are there any changes needed in that act to make it more effective, or are we okay with where we're at?

[Michel Leduc]

The act has stood the test of time. It's a really strong, sound piece of legislation. It was recently amended to ensure the differences between base and additional CPP.

We continue to evolve our approach within the framework that's provided, particularly on our disclosure. Disclosure doesn't stand still, so we continue to work hard to exceed those requirements, but the framework itself is solid and sound.

[The Chair, Liberal, Wayne Easter]

Okay. Thank you.

Go ahead, Mr. Dusseault.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

I'd like to quickly come back to one of your governance factors. I mentioned it earlier, as did you—executive compensation.

What criteria do you use to assess the executive compensation policies of the companies you have a stake in? There is increasing discussion around the ratio between what a company's executives earn and what its workers earn. Some argue that the CEO should earn no more than 30 times what the average worker at the company does.

Is that the sort of thing you take into account? If not, what criteria do you use?

[Mark Machin]

Thank you for the question.

Executive compensation is a focus area for us for our sustainable investments. We think there need to be clear and appropriate links between executive pay and company performance so that it contributes to an alignment of interests between management and long-term investors. We think that when interests are aligned, long-term shareholder value is more likely to be created, so we look for a clear link between executive pay and company performance. We look for appropriately structured executive compensation programs that emphasize long-term sustainable growth of shareholder value. We look for full disclosure in corporate reporting of compensation information and a clear rationale for the compensation decisions. Those are some of the areas that we are focused on and engage on with the companies we invest in.

[The Chair, Liberal, Wayne Easter]

Mr. Poilievre, you have the last question.

[Pierre Poilievre, Conservative, Carleton, ON]

You said that CPPIB was approached on a project by the government selling agent for the Trans Mountain pipeline. What date was CPPIB approached?

[Mark Machin]

I will have to get back to the clerk on the exact date. It was very recent.

[Pierre Poilievre, Conservative, Carleton, ON]

Was it in the last 10 days?

[Mark Machin]

Yes.

[The Chair, Liberal, Wayne Easter]

Is that adequate, or do you want the exact date?

[Pierre Poilievre, Conservative, Carleton, ON]

Mr. Machin indicated that he could get back to the committee with the exact date. That would be helpful.

[The Chair, Liberal, Wayne Easter]

There are a couple of points that you can get back to the committee on and send to the clerk, and that will be fine.

I know we had a pretty quick hearing this time around, but I think it was very productive. Thank you for the annual report as well. There is a lot of information in there. Thank you for the good job that you do. I think when you're getting 12% average return, or a little better than that, over the last five years, it's pretty impressive.

Thank you.

The meeting is adjourned.