The Exchanges

Q How did that lead you to getting involved in investing?

A I started pre.com in science working in the, I guess the technology world and did love it and still have a real affinity for it. But company obviously went through some tough times post.com and some of it was idiosyncratic to the company itself. The company sent me to get my MBA and I started to work in strategy and alliances, which was involved more at how do you prioritize the technology portfolio? How do you allocate capital across the portfolio? How do you look at internal versus external? When do you license? When do you buy? When do you develop? So some really interesting challenges on how to allocate capital. I got a call one day from a headhunter saying, would you be interested in coming and talking about a role at a pension plan? And my first reaction was, John Graham's a really common name. Are you sure you have the right John Graham? Yeah, we're pretty sure. We're pretty sure we got the right John Graham. So I went and I met with the team at CPPIB or CPP Investments. It was only a couple hundred people. Still had a reasonably large asset base of probably around eighty billion dollars, but they were one office in Toronto and just starting out. And I remember meeting them and being blown away. And blown away by the organization and what it could be, the governance model it had, the ambition it had. And this organization had the capability to be great and not just great…

AI assessment note: “Made the jump over to CPP Investments and started out as a mid-thirties associate.”

Q I'd love to pick apart some of that two-by-two matrix. I think the passive stuff, a little less interesting to pick apart, other than where have you decided that it makes more sense to invest passively?

A Our passive portfolio has actually grown a little bit over the past few years. We've increased it slightly from probably four or five years ago. If we're just trying to get exposure to something, if we just want equities exposure, we'll do it passively. If we just want fixed income exposure, we largely do it passively. Now the teams do have some ability around the edges to manage those portfolios, but the expectation is that it's largely passive. One example where I wouldn't say was necessarily An active to passive other than because there's no real passive alternative is macro. We had an internal macro team. It's challenging. We're not set up. We don't have the technology stack to do it. We really didn't have a right to win. So we do invest in a few external macro managers, but largely the capital that would have been allocated to that went passive.

AI assessment note: “if we just want equities exposure, we'll do it passively.”

Q How have you thought about your participation over time in emerging markets?

A Emerging markets have always been pretty big part of this CPP investment portfolio. And recently we have scaled back over the past few years, we actually scaled back our allocation to emerging markets. It's still reasonably large compared to many funds. I think we're about 15%, but it's not as large as it once was. And a lot of our appetite for emerging markets historically was a larger appetite for China than we have today. And now you can debate whether The world's second largest economy should be fitting into the emerging market bucket. Because again, back to looking through just the asset class labels, we had an appetite for a allocation into the world's second largest economy. In general, all the reasons people like emerging markets of growth and convergence, the rationale people get for emerging markets. So we've been investing in it. We have an office in Sao Paulo, an office in Hong Kong, and an office in Mumbai. So we've also been reasonably Active. From a alpha perspective, the teams have done great. The beta returns probably haven't been exactly what people wanted over the past few years. They seem to be turning around a little bit now at this point in time. So we right-sized what we wanted for the portfolio.

AI assessment note: “recently we have scaled back over the past few years, we actually scaled back”

Q How do you think about the process of moving capital around? You have teams, internal, selective managers, external, and it's a large portfolio. Things change in the markets.

A I describe it as a supertanker in that it's very hard to be nimble with a 700 plus billion dollar portfolio. What we need to do is to build a portfolio that is resilient through a broad range of macroeconomic conditions. When it sees something it doesn't like, it just hits it and runs it over. We can't really move it that quickly. One of the messages I do try to deliver internally and having experienced this for the past 20 years, every asset class will have its moment in the sun. Every geography will have its moment in the sun. It'll also have its moment in the shade, and you can't kill a program every time it goes into the shade, or you won't have anything after so many years. So it is expected that capital may not always be uniform into a given area. There's a big cultural aspect to it on how to think about capital coming in and out. We build internal teams. We have people, it's their livelihoods, and they want to do transactions, and they were hired to do transactions. It's a very reasonable expectation. So moving capital around is a big cultural component to it. Where I see it working really well would be within the department. So credit. Credit is, they're really good at moving capital around. We're saying, we think structured credit is more attractive than corporate credit. We think European credit or Asian credit is more attractive than North American credit, so we're g…

AI assessment note: “I describe it as a supertanker in that it's very hard to be nimble”

Q I'd love to ask you about two very topical areas That have changed over time. One is climate investing, and the other, of course, AI. Climate that used to be a couple years ago, tip of the tongue for everyone, has receded a little bit in interest. How have you gone about thinking about the importance of the climate in your investment process?

A Yeah, it's a great question. And the short answer is nothing's changed and nothing's changed in our investment process. And even getting back to our governance construct is we have a sole fiduciary mandate. We're about value, not values. We don't do concessionary capital. We don't do impact funds. We're about value. We're about returns. So we continue to think it's important to incorporate climate considerations right now, specifically physical risk into portfolio construction and security selection. And we ask every team to think through it. Just think about the impact on the insurance markets with physical risk and how that's impacting the value of certain assets and whether we think that's being priced properly in the market. We continue to invest in renewable energy around the world. We continue to see it as a interesting investment opportunity where it needs to stand on its own two feet. If it can only exist because of some type of subsidy, then we shouldn't invest in it, but the economics make a lot of sense in places around the world, and so we continue to invest in it. We also continue to invest in oil and gas, and we have a big oil and gas portfolio. The world, from our perspective, is going through an energy addition, not necessarily an energy transition, and I think AI is really amplifying that, in that we need more energy. And we should look to add sources of energy…

AI assessment note: “we continue to think it's important to incorporate climate considerations right now, specifically physical risk”

Q As you go through that trajectory of learning the business, investing in credit, finding some esoteric credit, then running the credit group, becoming CEO, how did you distill What you learned either as a scientist or a credit investor along the way that formed your ability to go from an analyst to a portfolio manager to leading teams?

A A few things I'd comment on. I did work as a scientist for about nine years, and there are very few things I know with certainty in my life, and one of them is I don't do science anymore. Because in science, there's an answer where we can do an experiment and someone in Japan and the US and Europe can do the same experiment and get the same answer. Investing is about in some ways predicting the future because we don't have data on the future. So it's about inference. It's about judgment and it's about making choices. And that was actually a very helpful thing for me to have done science and know that this is different. I don't fall in love with the models. I don't fall in love with the quantitative outputs because they are there to help guide what is ultimately going to be a decision and a choice. So obviously I had to learn more of the investing business, and I was very fortunate to have mentors and very fortunate to have people along the way. And investing is an apprenticeship business. You don't learn it in school. So I learned it on the ground. And one of the great things about CPP investments is you see lots of opportunities. So we had lots of reps. And so you learned, made mistakes, and was able to get that on the ground training and build portfolios and do okay with that. One of the things that I also learned in my corporate life, and my corporate life was a company that…

AI assessment note: “that was actually a very helpful thing for me to have done science”

Q When you get to thinking about how to align the team to work together for that common portfolio goal, you get right to incentives and compensation. There's always been an interesting question of in an internal pension model, how do you hire and retain the people you want? And how has that played out over the last several years?

A Yeah, nothing sharpens the mind like compensation. This will always be a challenge. We don't pay carry. We don't have the same pay structure as a general partner. We don't pay promote, so we don't have the same pay structure as a hedge fund. But people are compensated fairly, and people are compensated well, and everybody's mother is proud of them for working at CPP Investments. That gets back to the right to win and where to play in areas where the constraints on the organization do not cause you to lose the game. It's why in the private equity space we play a partnership model where we work with the best. We don't compete with the GPs. The private equity space is such a well-developed, large, mature market, and the partnership model works really well. Our private equity professionals have a great career and a super fascinating role, but they are solving for something slightly different than a GP. So we're eyes wide open that our compensation system While people are paid in the Canadian model fair, they aren't paid like they would be at a general partner or a hedge fund. And so ensure that the strategy that we run doesn't put us in a situation where we're fundamentally disadvantaged.

AI assessment note: “We don't pay carry... But people are compensated fairly, and people are compensated well”

Q There's this interesting dichotomy between talking about how you want that cross fertilization of your internal teams Improving. And this separate team going out with external managers. How have you thought about the crossover and potential value creation between what you can learn from the external managers you selected and your internal teams?

A One thing I would say when I talk about the east-west connectivity is exactly that. It is exactly taking the knowledge that is embedded in that funds team and driving it through the organization. Not only providing an access to opportunities, but also an access to knowledge, an access to information. Obviously, partnering with external managers, we focus on the net returns, but we do pay fees and carry, and we have an expectation of partnership that we will learn things just about macro, that we will learn things about geopolitics. That's part of the reason we do it. You work with the best around the world. I will spend a lot of time with the leaders of these firms, not going through their portfolio, but trying to understand how they're thinking about said geopolitics, how they're thinking about the macro environment, how they're thinking these big mega trends in the industry. So that's a real focus of mine is the expectation that these teams that are external portfolio management team and our funds team, that they are diffusing the knowledge and the information through the rest of the organization. It's hard though. It's really hard.

AI assessment note: “taking the knowledge that is embedded in that funds team and driving it through the organization”

Q What have you found most effective on the team to figure out which opportunities are bubbling up that you can add incremental capital to?

A Carrots always work. Incentives always work. We really try to celebrate, to highlight, to reward areas where opportunities that don't fit neatly within an individual asset class are Really highlighted and rewarding the individuals who are thinking with that one fund or enterprise mindset, but also knowing that we're asking people within their asset class to deliver the best returns they can within their asset class, but not to be so dogmatic and not to be so tunnel visioned into their asset class that if they see something that might be interesting to another group or might even be a can share, then putting their hand up and say, we should look at it. We've seen great success between our private equity and our credit group, and there's a natural synergy there where they're in the same areas. You obviously have to be careful with information at times. The level of connectivity between our credit and our private equity team today versus even five years ago when I ran it is just much better. We're seeing great connectivity across our real assets team, our infrastructure team, our energy team, and our real estate team working together. Live examples are data centers. Is data center real estate? Is it infrastructure? The constraint is energy. So rather than having discussions about where it fits, the real assets team just does data centers and they staff it with people from each gro…

AI assessment note: “Carrots always work. Incentives always work. We really try to celebrate, to highlight, to reward”

Q As you look out over the next couple years, having been in the seat for several, how do you think about continuing to make the imprint that you want onto CPPIB?

A I always say I work at the pleasure of the board, and for as long as they allow me to be in this seat, and as I think about the role and I think about CPP investments, we need to be here 75 years from now. We can't fail. Twenty two million people rely on the plan, but we can't be complacent and we can't be a victim of like creative destruction in the market. So we have to create this like risk taking at the grassroots level and this experimentation and risk taking at the grassroots level with stability at the global level. I think it's one of the great challenges we have. And one of the ways that I think about it and we talk about as a senior team is Because we have to be here 75 years from now, we're not a founder culture. We're almost the exact opposite of a founder culture. Our job is to put in place an organization that in many ways will be able to operate independently of the people who are there in the past. We can't become totally dependent on a few people. So it's not the right word, but we have to institutionalize because we have to be They're in 10 years. They're in 15 years. They're in 20 years. And so I think that also that mentality of singing, we're not a founder culture of a little bit of the discipline of when we make choices, we're not making a choice for us. We're making a choice for the people who are in these seats, because the one inevitable future we know …

AI assessment note: “Our job is to put in place an organization that in many ways will be able to operate independently”

Q How do you and the team determine what are those best opportunities from that wide opportunity set?

A It's not easy, and it is also not how most of the industry works. This starts to challenge people's personal identity also, because it's not how the industry works. In the alternative assets space often just works on an absolute return model. But we're solving something different at CPP Investments. We're solving for the highest total return at the total portfolio level. And I've learned this in this job. When I speak to the key stakeholders around the country, they want to know what the total return is. They aren't as interested in what the sub-asset class returns are. They want to know, is the total portfolio okay? And what's the return of the total portfolio level? So that's what we have to optimize. But the sell side is set up often by products. It's not really, they're not optimizing a total portfolio. So they're selling products and we're buying products. So to actually execute on almost a relative value framework where capital could move between asset classes Between public and private, where we don't have hard allocations into each one, it requires a huge amount of coordination across the organization. There's almost a tax that has to be paid in the coordination tax in the organization. It means people have to be pricing risk, maybe not exactly the same, but at least in some comparable way. Our CIO, Ed Cass, has to be able to look across the asset classes and see that A…

AI assessment note: “execute on almost a relative value framework where capital could move between asset classes”

Q You mentioned using AI in the investment committee. How do you do that?

A We can train the models on all of our historical investment recommendations and such, and then can ask the model to ask questions. We can do that. We can get the model to ask questions and just to prep, or people will use to summarize it. Personally, today I found it interesting. Not all that, I haven't been super impressed, I guess, by the quality of the questions, but that's okay. Because Part of the value, I think it makes the investment committee pick up their game a little bit, because we can put the memo into the model and get 10 questions in about one minute, and so you can ask the investment committee members, and whatever we paid for that license is hundreds of dollars, and so we can ask the investment committee members, you better have a question better than these 10, because we got these questions in one minute, and you're bringing 20 years of experience. I think it actually will help with the efficiency and the quality. I think we still got to look to the experienced investors for having that intuition.

AI assessment note: “We can train the models on all of our historical investment recommendations”

Q I want to turn over to the investment framework, and we talked some like when Jeffrey was on the show about the Canadian model, about total portfolio approach. As you step into the CEO seat, how do you think about the evolution of the approach as time has passed?

A A lot has been written about the Canadian model. It's been an incredibly successful model. I know Jeff shared teachers was really the pioneer of the model, and then it's been replicated by others such as us at CPP Investments. If you ask people to describe the Canadian model, people might have a slightly different description of what it is, so I'll share how I think about it. I think about it as being an active asset manager and making that decision about how to Access different asset classes in different geographies around the world. Building internal teams where it makes sense. Partnering with the best people around the world where it makes sense. Some of the fundamental beliefs in the model. Partner with the best. Internalize where one has a real cost advantage. And at the end of the day, we're solving for net returns. And so when everything shakes out, we'll have higher net returns. As I think about the Canadian model, it's been super successful, and it's why it's been replicated in many different kind of sovereign wealth funds and institutional investors around the world. When the Canadian model was first being developed, I would say the world was a different place. Think about some of the big asset managers, the Blackstones of the world, that are trillion dollar asset managers today. They were different 15 years ago. The rise of these mega asset managers across the altern…

AI assessment note: “we do spend a lot of time thinking about how we have to change”

Q How do you describe the difference in leading leaders from managing someone who isn't leading a group?

A I'm a big believer in delegation. On the investment side, we delegate decisions into the people who are at the coalface with the sense they have the best intuition and the best sense of where markets are pricing, and we should do everything we can to delegate down to the people who are actually in the trenches. We spend quite a lot of time thinking about decision making and thinking about delegation. If you ask my colleagues, they would say this is very much a work in progress. I think we're making progress. We are thinking about it and it's a priority. And we delegate also a belief that people make decisions because we need accountability for decision making. So we don't have committees that are making decisions other than, let's say, the investment committee. So if we're going to delegate, delegation without alignment is chaos. If one delegates decision making and people aren't aligned to what the organization is trying to achieve, it ends up in a real, a quagmire. So when I talk about leading leaders, It's about alignment. It's about ensuring that the people around the table with you are aligned with where the organization needs to go, are aligned with the objectives of the organization at that point in time. And without alignment, it's very difficult, almost It's damaging to delegate.

AI assessment note: “So when I talk about leading leaders, It's about alignment.”