Government Operations Committee on June 7th, 2016

[Kelly McCauley, Conservative, Edmonton West, AB]

The people will apply. It will go to—

[Stephen Lucas]

No, no, I hear you.

[Kelly McCauley, Conservative, Edmonton West, AB]

I'm trying to figure out, frankly.... A lot of people around the table have worked in the private sector and have had five full-time people to collate resumés before any of the heavy decision-making has been done. I know my counterpart here thinks it's nowhere near enough, but there are never enough government employees for the NDP.

Literally, what else are they going to be doing besides accepting a resumé, printing it, and passing it up the line to the appointed people from the government who are going to choose, or push through the chosen few?

[Stephen Lucas]

Mr. Chair, the secretariat would support several functions.

Indeed, one is helping to establish and support the website. The second is indeed being able to—

[Kelly McCauley, Conservative, Edmonton West, AB]

They're going to build a website?

[Stephen Lucas]

No, but—

[Kelly McCauley, Conservative, Edmonton West, AB]

They're going to support it. Are they going to provide IT support for the website?

[Stephen Lucas]

—they're providing the framework and the requirements for it, and drawing material from it, but more fundamentally, supporting the committee in terms of helping schedule and organize their meetings. The committee members are dispersed across the country. It's not one committee, but committees per province. There are multiple meetings given that the vacancies span a number of jurisdictions across the country.

It's also about being able to support the committee in its deliberations to come from however many applications come in to the five nominations for the Prime Minister, and being able to support those decisions ultimately by the Prime Minister.

[Kelly McCauley, Conservative, Edmonton West, AB]

Do you believe that the five are justified?

[Stephen Lucas]

Yes, I do.

[Kelly McCauley, Conservative, Edmonton West, AB]

Perfect. Okay.

Do we know how much the cost of the website's going to be? I understand, when looking at the website, it was supposed to be up by spring 2016. Of course, we're almost done, so I know the application website won't be up and running. Is it being built right now? What's the cost behind that? Is that on top of the...?

[Karen Cahill]

Mr. Chair, we're forecasting an amount of $400,000 to develop the website.

To be clear, this initial website will be based on the structure that we have, which is the foundation that we have for our Governor in Council appointments, so we're not starting from scratch.

[Kelly McCauley, Conservative, Edmonton West, AB]

You're not starting from scratch. That's on top of an existing base.

[Karen Cahill]

Overall, the website will be, we're estimating, $400,000. This is for the first shot at the website.

Once this first round of appointments is finalized, we will also enhance our website to ensure that we have—

[Kelly McCauley, Conservative, Edmonton West, AB]

I'm sorry, let me interrupt, you said the first—

[The Chair, Conservative, Tom Lukiwski]

Sorry, Mr. McCauley, we're over the five-minute allotment right now, and we do have another set of witnesses here, so I'm going to have to cut it off.

Thank you very much, Mr. Lucas and Madame Cahill, for being with us. We'll suspend for two minutes while we wait for our next witnesses to come forward.

[The Chair, Conservative, Tom Lukiwski]

Colleagues, we'll begin again.

With us we have two witnesses from the Public Sector Pension Investment Board, Mr. André Bourbonnais and Mr. Garant.

Mr. Bourbonnais, I understand you have a brief opening statement. Please go ahead, sir.

[André Bourbonnais, President and Chief Executive Officer, Public Sector Pension Investment Board]

Mr. Chair, members of the committee, good afternoon.

My name is André Bourbonnais and I am the president and chief executive officer of PSP Investment Board. My colleague Daniel Garant, executive vice president and chief investment officer, and I are pleased to appear before the committee today to discuss PSP Investment Board's mandate and operations and to provide you with an overview of our activities.

I joined the organization just over a year ago and it's a real honour for me to have an opportunity to contribute to its long-term success and to the long-term sustainability of the pension plans whose assets we invest.

PSP Investment Board is an arm's-length crown corporation that was established in 2000 to invest the amounts transferred by the Government of Canada for the funding of the post-2000 obligations of the pension plans of the Public Service of Canada, the Canadian Forces, the RCMP, and since March 2007, the reserve force pension plan. Our statutory mandate is to manage the funds in the best interest of the contributors and beneficiaries and to maximize investment returns without undue risk of loss, having regard to the funding, policies, and requirements of the plans and their ability to meet their financial obligations. Our goal is to ensure that, given the current level of contributions, and in the absence of other factors that may affect the funding status of the plans, we earn sufficient returns so that there will be enough assets to cover promised pension benefits, or in other words, that we have fully funded plans.

Currently, the chief actuary has determined that this requires achieving a 4.1% real rate of return over the long term. One can appreciate that achieving such a rate of return is not risk-free. Indeed, there are no investment opportunities that can generate such a return without taking risks, accepting, therefore, a certain level of volatility. Accordingly, one should expect returns to be higher than the objective some years and lower in other years. What matters is that our investment strategy is carefully calibrated to maximize returns and the likelihood of achieving the return objective, while limiting the amount of risk the board and the management of PSP deemed the minimum necessary to achieve this objective. To that end, we have adopted a portfolio diversification strategy that goes beyond public assets like stocks and bonds to include less-liquid private asset classes, such as real estate, infrastructure, natural resources, private equity, and private debt.

My first priority when I joined PSP was to lead the strategic review process that will guide our evolution over the next five years. One of our key challenges going forward will be to manage growth. Our assets under management are expected to reach $165 billion by 2021. This means we will need to find a significant number of new investment opportunities, and we will have to do it in an investment market that is increasingly competitive, not to mention, in the context of the current global economy, one that is generally expected to yield low returns and low growth over the next few years.

To succeed, it will be important to implement investment strategies that are scalable. For instance, in PSP's world, a scalable investment strategy is the development of investment platforms. Those are best explained by way of an example. A few years ago we purchased a participation in five airports from a German company. Also included in the investment was an operating team of highly skilled professionals who specialize in the management of airport investments. In addition to managing our participation in those airports, this team now helps us identify potential investments in others. The fact that we can rely on such a competent management team helps us submit stronger bids and attract other investors. This is just one of the many platforms we own.

Selecting the best investment partners is also very important to our success. Our expertise lies in selecting the best investment opportunities, not in managing the day-to-day operation of our investee companies that operate in a wide range of countries and industries. For that we rely on our investment partners. Since those partners have a very direct impact on the success of our investments, we need to ensure that we work with the very best and that our interests are totally aligned with theirs.

In order to attract the right partners, we rely on networks that are often local, and thus we must be present in the world's main financial centres. A local presence in key markets will also help us unlock new investment opportunities. A significant pillar of our strategy is therefore to expand our global footprint. We recently opened an office in New York, which is a key market for our new private debt asset class. We're also building a European hub in London, and eventually we would like to open an office in Asia.

Another important aspect of our strategy going forward will be to improve collaboration within our organization. We have already started to shift our focus from an asset class perspective to a total fund perspective. This, I expect, will have a profound impact on the way we conduct business, how we make decisions and how we manage risks.

For example, we've created a dedicated chief investment officer group, led by my colleague Daniel Garant. Under his leadership, we will form research groups composed of individuals across our asset classes that will develop thematic research that will translate into investment ideas and inform investment strategies.

The chief investment officer will also be responsible for designing and implementing a strategy to enhance our flexibility to make investments that are beneficial to PSP as a whole, even when they don't fit within our usual asset class approach.

Finally, our most important asset is our employees, so identifying, attracting, retaining and developing talent is one of my key priorities. Already, I'm proud to say we've made tremendous progress in promoting diversity in our ranks over the last year. We plan to continue those efforts.

In conclusion, we have our work cut out for us, but my colleagues and I could not be more excited and energized to tackle such a tremendously stimulating challenge. We are particularly proud to do it in the interests of the sponsors of the plan, the Government of Canada, and the plan's contributor and beneficiary.

Mr. Chair, this concludes my remarks. Mr. Garant and I look forward to any questions members of the committee may have.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much, Mr. Bourbonnais.

Colleagues, as I mentioned earlier, we need a little time at the end of this meeting for committee business. Also, prior to going in camera for committee business, we have a number of votes on supplementary estimates, so I am suggesting that we go through one full seven-minute round and then we will suspend and get into the votes before committee business.

With that, Madam Ratansi, you have seven minutes, please.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Thank you, Mr. Bourbonnais. You have a very impressive resumé.

From a governance perspective, the Government of Canada is responsible for risks if there is any underfunding of the plan. According to the Auditor General's report there was a cumulative underfunding of $6.5 billion from 2011 to 2013. You came in 2015, but can you help us out here? How does the PSPIB determine the risk tolerance of your sponsors? They are different sponsors and there is not a central body working with you to tell you about their risk tolerance level.

[André Bourbonnais]

The risk tolerance is determined by the government. We have ongoing discussions with the government to determine what type of risk they want us to take in trying to generate the necessary returns to cover the pension plan.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Is it Treasury Board or the Department of Finance?

[André Bourbonnais]

It's Treasury Board.

As I stated today, the funding risk needs to be equivalent to a real return of 4.1%.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

As I was looking at the investment portfolio, there were 10 large equity holdings in them, one of which was Valeant. I understand that Valeant was also the third largest equity holding of the Canada pension plan.

What impact has the decimation of the Valeant shares had on the pension plan?

[Daniel Garant, Executive Vice President and Chief Investment Officer, Public Sector Pension Investment Board]

We invest in broad indices. For example, the Standard & Poor's 500 is a good reflection of the U.S. large cap market. Valeant being a publicly traded company is part of the index. You saw an illustration of the size of our portfolio in terms of U.S. equities. It's not an active decision to invest in Valeant. It's just that we own the index and Valeant is a part of it, but we don't have an active position in Valeant per se.