Evidence of meeting #33 for Finance in the 45th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was investments.
A video is available from Parliament.
Conservative
Éric Lefebvre Conservative Richmond—Arthabaska, QC
Can you tell me the first two or three criteria you consider when making investments?
Senior Managing Director and Chief Public Affairs Officer, Canada Pension Plan Investment Board
Yes, absolutely.
It's a bit like baking something. You need ingredients, and in some things, you need all of the ingredients. If you're making bread and you miss one core ingredient, it will fail. Either it will not rise or it will miss an important part of the flavour. We see five ingredients that are core, and all of them have to exist: a predictable, rules-based policy environment; bankable projects and a bankable pipeline at scale; attractive, risk-adjusted returns; efficient execution with low friction; and openness to foreign capital that we can partner with on big projects.
I have a lot of detail on each one of those five, but I'll keep it at the headlines to respect the time we have.
Conservative
Éric Lefebvre Conservative Richmond—Arthabaska, QC
Thank you very much for your clear answers, Mr. Leduc.
Liberal
Liberal
Carlos Leitão Liberal Marc-Aurèle-Fortin, QC
Thank you very much, Madam Chair.
Good morning, Mr. Leduc. Thank you for being here.
We can continue the conversation you had with my colleague Mr. MacDonald, to give the public more information about what you are already doing in Canada. I'm talking about the $117 billion in the Canadian portfolio. Could you tell us how that portfolio is currently allocated?
Senior Managing Director and Chief Public Affairs Officer, Canada Pension Plan Investment Board
Are you talking about the allocation in Canada specifically or the global allocation?
Liberal
Senior Managing Director and Chief Public Affairs Officer, Canada Pension Plan Investment Board
We could write a letter identifying all the sectors, but the portfolio certainly includes the big financial companies. For example, last month, we made a fairly significant investment in Wealthsimple. I also mentioned the energy sector. We're also actively looking at opportunities to invest more in data centres. We've invested in data centres, but we want to invest much more in that specific sector.
In general, if we look at the performance of Canada's various sectors, we see that our Canadian portfolio probably mirrors those top economic sectors in Canada.
Liberal
Carlos Leitão Liberal Marc-Aurèle-Fortin, QC
Thank you very much.
I also assume that the $117 billion includes provincial bonds, meaning that it's part of the total.
Senior Managing Director and Chief Public Affairs Officer, Canada Pension Plan Investment Board
Yes, exactly.
Liberal
Carlos Leitão Liberal Marc-Aurèle-Fortin, QC
Now I'd like to talk about another subject. You might think it's a bit simplistic, but I believe it's important to be clear, not necessarily for you, me or my colleagues here, but for the members of the public who are watching us.
You have spoken several times about the participating provinces. Can you explain a bit about what the provinces have to do with this?
Senior Managing Director and Chief Public Affairs Officer, Canada Pension Plan Investment Board
Certainly.
The Canadian Constitution really gives the provinces power when it comes to pensions, with the exception of sectors that fall under federal jurisdiction, such as banks and airports.
When it comes to our business, the provinces and the federal government are equal partners. There are 10 finance ministers. I know you were Quebec's minister of finance at the time the plan was expanded, and I believe it was you who signed the agreement, so thank you for that.
The provinces are absolutely important when it comes to our public accountability.
Liberal
Carlos Leitão Liberal Marc-Aurèle-Fortin, QC
Thank you. Yes, it's important to point that out to everyone.
Since you spoke about that meeting a few years ago, when the CPP2, or the second additional CPP contribution was created, could you quickly explain to those following these proceedings why the federal and provincial governments and your organization decided it was a good idea to create another plan?
Senior Managing Director and Chief Public Affairs Officer, Canada Pension Plan Investment Board
If you look at the average benefits for someone who retires at age 65 and has contributed their entire life, before the recent reforms, they would have received the equivalent of 25% of their pre-retirement income. With a lot of study, including after the global financial crisis, it became clear that Canadians were not necessarily investing sufficiently in their RRSPs, because they're living longer lives, or that they did not have access to a workplace pension, so the reforms marginally increased the contribution rate. However, when they retire now, the replacement is not 25% but 33%.
It's elegant, because if you save at home, you save at work and you save through the CPP, with the three pillars equal at 33%, you retire with almost 100% of your pre-retirement income—again, on average.
Liberal
Carlos Leitão Liberal Marc-Aurèle-Fortin, QC
I think that's a very good way to make sure that younger folks—much younger than me—when they retire, can have access to a decent....
By the way—
Liberal
The Chair Liberal Karina Gould
Thank you, Mr. Leitão.
We'll continue now with Mr. Hallan for five minutes.
Conservative
Jasraj Singh Hallan Conservative Calgary East, AB
Thank you, Chair.
Mr. Leduc, thank you for being here.
You mentioned earlier favourable market conditions. You said something along the lines of the credibility of the approval process playing a factor in them and that predictability plays a factor in where you guys are investing. Can you tell us a bit more about that credibility of the approval process? What is it about Canada, specifically, that made you say the credibility of approval process and the predictability...?
Senior Managing Director and Chief Public Affairs Officer, Canada Pension Plan Investment Board
As a global investor and in my role specifically in engaging with governments, whether it's in the U.K., India or the U.S.—all of our core markets—the sorts of assets that we want access to, where there are few bidders because it's just too complex.... Complexity is actually an advantage that we have. We see the same thing. It's the same pattern, so we've been engaging with governments to develop a clear framework that makes our money more accessible to them.
Governments around the world are falling over themselves to attract patient, productive, constructive.... What we see in Canada is comparable to what we see around the world. The credibility that I mention is an outcome of a good, transparent, predictable framework. Credibility is a brand attribute. If you're thinking about Canada Inc. and you want these attributes and these features for global investors to want to come here, one of the attributes should be credibility. If I'm going to come in here and spend a lot of time acquiring things, you want to have this attribute of being predictable, of having scalable projects—
Conservative
Jasraj Singh Hallan Conservative Calgary East, AB
That's right.
In Canada, let's take a project like.... The most recent one I can think of is Teck's Frontier mine project here. Goalposts were moved. They stopped the project and got up and left. In my mind, the government itself was a big part in not letting that project go through.
Are these some of the things that you are looking at in why there aren't more investments here in Canada?
Senior Managing Director and Chief Public Affairs Officer, Canada Pension Plan Investment Board
What I'll say is that, as an institution, we have the benefit of hard battles. We've experienced some, and that's the nature of taking on risk. We've experienced some pretty difficult things in places like New Zealand and Norway, and I mentioned other places. We've learned from that, and we're trying to bring those learnings to Canada.
Conservative
Jasraj Singh Hallan Conservative Calgary East, AB
I guess what I'm trying to understand is this: We have abundant resources here. They're not being developed. There are obviously projects like energy east and like Teck's Frontier project that did not go through under this government. In fact, RBC's report said there's $10 trillion of U.S. capital available in Canada between pension funds and asset managers, but it's not going anywhere right now because there are three areas where the government needs to remove barriers.
I just want to know if you agree with this or not. The report says to raise risk tolerance and remove burdensome regulations and red tape, which includes permitting—like you talked about. It says to ensure process certainty with regard to shifting rules and vague government priorities, and to reward risk-taking and entrepreneurship.
Would you agree that these barriers need to be removed?
Senior Managing Director and Chief Public Affairs Officer, Canada Pension Plan Investment Board
I'd say that there's room for improvement, and we absolutely see also, on the other side of the coin, that there's momentum. There's clear.... We're seeing expression of interest and a level of enthusiasm to attract our capital in ways that we haven't seen in quite some time.
Are there areas that need to be made more clear? There are, for sure.