Timely Investing Lessons For Today: A “Q&A” With CPP Investments
Your financial life is serious business. When it comes to achieving major long-term financial goals, the stakes are high. Now imagine if you were responsible for overseeing the Canada Pension Plan Investment Board (CPP InvestmentsTM) and the Fund’s over $700 billion worth of net assets1. Surely, it would be invaluable for MoneySavers of all ages—but especially for young adults—to learn how the professionals at the helm of CPP Investments, the independent Crown Corporation tasked with ensuring that the CPP is financially sustainable, manage the Fund for more than 22 million Canadians, six million of whom received CPP benefits last year2.
Consider these additional facts as extracted from CPP Investments Annual Report 2025 “Investing for Canadians” for the fiscal year ended 31 March 2025:
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The Fund’s 10-year net return was 8.3% as of March 2025, and the 10-year return (calendar year basis) ranks it second among the planet’s national pension funds according to pension industry expert Global SWF
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The Fund is growing rapidly; it’s expected that net assets will breach the $1 trillion mark within six years
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The Fund has been deemed to be financially sustainable for a minimum of 75 years, as found via an independent assessment conducted by the Office of the Chief Actuary
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The Fund has performed admirably over the past quarter century, with $492 billion—approximately 75% of the Fund’s current assets—coming from net investment income generated by management.
What follows is a “Q&A” interview with Michel Leduc, Global Head of Public Affairs and Communication, CPP Investments. Note that all facts embedded in the following questions appear in CPP Investments Annual Report 2025 “Investing for Canadians”.
Q1. Admittedly, the Fund has some inherent advantages—an elongated investment horizon, predictable future cash inflows and scale—which set up investing success. Can you comment on the impact that a long horizon has on how CPP Investments approaches market downturns?
Mr. Leduc: CPP Investments’ extended investment horizon is a foundational advantage that shapes our response to market downturns. Unlike many institutional investors who are constrained by short-term pressures, CPP Investments is built to make decisions with a view that spans generations. This allows the organization to endure and even take advantage of short-term volatility without compromising long-term objectives.
For example, the Fund does not rely on asset liquidation to meet benefit payments, which are currently paid by contributions made to the CPP by individuals and employers. CPP Investments invests contributions not needed to pay benefits, which means we are not a forced seller in distressed markets. Instead, we can rebalance the portfolio with discipline during market turbulence and invest in assets at depressed valuations, positioning the Fund for recovery gains.
Our strategic approach—underpinned by diversification and risk management—aims to deliver steady, long-term returns. This was evident during periods like the COVID-19 downturn, when CPP Investments made investment gains even as many public markets declined sharply.
Q2. While diversification is at the heart of the Fund’s success, one key strategic choice that CPP Investments has embraced is a commitment to what management refers to as the “Total Portfolio Approach”. This approach, which goes beyond a simple 60% global equity/40% Canadian government bond balanced portfolio, calls for the Fund to utilize active management to generate additional value. It has led the Fund to embrace alternative investments, as witnessed by the following asset class weightings as of 31 March 2025:
Public Equities 29%, Private Equities 29%, Government Bonds 15%, Credit 11%, Infrastructure 9% and Real Estate 7%.
Over the past five years ending 31 March 2025, Private Equities have returned 15.7% to lead all asset classes with Public Equities returning 11.3%, Infrastructure 8.1%, Credit 6.7%, Real Estate 0.5% and Government Bonds -1.2% resulting in a 9.0% annualized net return for the Fund.
What is it about investing in Private Equities that has made this asset allocation decision so profitable? Is this an asset class that the Fund continues to see as growing in the future in terms of asset class weighting?
Mr. Leduc: Our private equity team’s integrated approach—investing both directly and through funds— enables access to high-quality investment opportunities that may not be available through public markets. We achieve long-term value creation, in part, by partnering with the management teams of portfolio companies across the full investment life-cycle from initial investment, through growth, and to potential sale of the asset to benefit the CPP Fund. This includes acting on proprietary insights, enhancing governance and optimizing performance.
Private equities have been the top-performing asset class for CPP Investments over the past five years, delivering 48% of total Fund returns and a 15.7% realized net return as of 31 March 2025, as noted. Our long-term horizon, global scale, and strong relationships with over 150 private equity managers and specialized partners have enabled us to capitalize on market gains over this period.
We expect private equity to continue playing a significant role in the portfolio, supported by strong fundamentals and continued innovation in sectors like technology, healthcare, and consumer services.
Q3. Given the times we live in, Canadians are likely more attuned to understanding where the Fund’s dollars are invested. The Fund’s geographic composition, with percentages in brackets, is as follows as of the 31 March 2025: United States (47%), Europe (19%), Asia-Pacific (17%), Canada (12%) and Latin America (5%). While the Fund returned 9.0% on an annualized net basis over the past five years, the net return variances by geographic region were material. When it comes to the Fund’s annualized net returns by geography, here are the results, with 5-year net returns shown in brackets: United States (9.6%), Latin America (8.2%), Europe (6.6%), Asia Pacific (6.2%) and Canada (5.8%).
Having almost half of the Fund invested in the U.S.A. has been beneficial from a return perspective. Would you anticipate that the Fund would continue to invest heavily in non-Canadian regions going forward, and, if so, what benefits come from this broad geographic diversification?
Mr. Leduc: Let me make two points: one about the growing opportunities in Canada and one about the benefits of diversifying geographically.
First, there is a great deal of geopolitical risk in today’s world, and Canada can benefit by setting the stage to encourage long-term, patient capital to invest here. We see the federal and provincial governments working to do that, and CPP Investments is open to making more investments in Canada. We are mindful of our legislative objective to achieve a maximum rate of return without undue risk of loss. But we know our home market well, and we will look seriously at any potential investment opportunity in Canada that matches the scale and predictability that we need to ensure solid returns for Canadian contributors and beneficiaries.
Second, CPP Investments’ geographic diversification strategy has paid off. As mentioned, U.S. assets returned 9.6% annually over the past five years, outperforming every other region, and significantly contributing to the Fund’s overall performance.
The rationale for broad geographic diversification is twofold. First, it mitigates concentration risk tied to Canada’s economic and demographic trends. Second, global markets offer access to sectors and opportunities not always present domestically. With Canada comprising only about 3% of global capital markets, CPP Investments must look abroad to fulfil its mandate to maximize returns without undue risk.
This strategy has allowed the Fund to benefit from global growth trends, including those in emerging markets and U.S. technology sectors.
Q4. CPP Investments’ focus on cost effectiveness continues to be impressive. The Fund’s recent operating expense ratio clocked in at 0.261% which is below the Fund’s five-year average of 0.277%. Do you see disruptive technological advances such as Artificial Intelligence (AI) playing a larger role going forward when it comes to the Fund’s investment decisions, and, if so, what impact could that have on the Fund’s over 2,000 employees?
Mr. Leduc: We view effective cost management as a strategic imperative that can help us improve the Fund’s long-term investment performance. We consistently and continuously evaluate whether we are allocating our resources towards the most value-adding activities. From this, we learn to progressively improve the efficiency and effectiveness of our capital and resource allocations over time.
In terms of cost effectiveness, CPP Investments’ operating expense ratio fell to 0.261%, below the five-year average of 0.277% as noted. AI is expected to help drive further productivity gains, ensuring that CPP Investments continues to deliver value at a global scale without proportionally increasing costs.
CPP Investments recognizes AI as both a powerful tool and a disruptive force in modern asset management. AI is being explored for use in a variety of ways across the organization, including investment research, performance attribution, risk management, and internal operations. In fiscal 2025, the organization introduced responsible AI guidelines, and expanded training across departments.
AI is not seen as a direct replacement for human capital, but rather, as a way to enhance decision-making and free up employees’ time for higher-value activities. Still, we maintain a disciplined approach to talent management. At the end of fiscal 2025, CPP Investments managed $140 billion more than two years earlier with the same number of employees—roughly 2,125—demonstrating increasing productivity.
Q5. Climate change and sustainability continue to be vitally important themes for the Fund. John Graham, President & CEO at CPP Investments, has indicated that “In the case of climate change, we’re investing for a whole economy transition, knowing that while global efforts are clear, the pace of progress will be uneven." 3 What is the impact of this perspective on the long-term prospects for Fund investments in sectors such as Canadian oil and gas?
Mr. Leduc: To protect and grow the Fund, we integrate material business risks and opportunities, including sustainability factors, into decision-making across the investment life cycle of portfolio companies. We believe companies that effectively anticipate and manage material sustainability-related factors are better positioned to be more profitable and resilient over the long term.
With this approach in mind, CPP Investments views climate change through the lens of a “whole economy transition”. Rather than pursuing blanket divestment from carbon-intensive sectors like oil and gas, we emphasize engagement, transition planning, and long-term value creation.
Canadian energy remains a strategic investment area. The country is seen as a reliable supplier of critical resources, and CPP Investments has significant exposure to Canadian oil and gas through infrastructure and power assets. These investments are managed with an eye toward innovation, sustainability, and positioning for the global energy transition.
Some Lessons Worth Pondering
A wise MoneySaver would certainly note that appropriate diversification is a key driver of CPP Investments’ success, as is the Fund’s ultra-long-term investing horizon. We all value the ability to concentrate but concentrating your investments in a country as small as ours increases investment risk as opposed to mitigating that risk. While it’s now common for massive pension funds such as CPP Investments to embrace alternative investment strategies that go beyond a traditional 60/40 portfolio, individuals and families who own a home/condo should recognize that real estate is considered one of the many alternative investments or “alts”. As such, many Canadians already have a good portion of their assets invested in alts. Although we don’t have control over the many factors that impact our investments, we certainly can control our costs, and keeping investment costs down over the long term should be an important priority. Finally, it’s prudent to be cautious when it comes to making bets with your investment portfolio by jumping totally on or off investment themes, even those that seem undeniably powerful, such as climate change. It’s worth noting Mr. Leduc’s comments regarding CPP Investments’ emphasis on “long-term value creation”, which has led the Fund to avoid “blanket divestment” in sectors such as Canadian oil and gas.
Fred J. Masters, BBA, BEd, PQP, is the author of Lessons on Mastering Money: The Personal Finance Guide for Canadians in their 20s & 30s. He is the President of Masters Money Management Inc. and has given financial wellness presentations to all demographics in Canada, including university students and alumni. He is a retired professional educator, having taught senior financial accounting for decades. He is also a licensed mortgage agent with Mortgage InGenuity Inc. and can be reached at F.Masters@mastersmoneymanagement.ca. To find out more, visit www.mastersmoneymanagement.ca.
This work contains the author’s opinions and ideas as related to the subject matter. The content is by no means designed to provide any reader with individual financial advice. Note that past performance is not a guarantee of future results when it comes to any specific investment or investment strategy. Always consult a competent financial professional for advice when it comes to making financial decisions. No guarantee is made with respect to the accuracy or completeness of the content.