Canada's top 5 pension funds

For years, Canada’s top pension plans have ranked among the top pension funds in the world. A paper from the Bank of Canada says some of the reasons behind this success includes use of internal management, made possible by:

• economies of scale,
• diversification across a broader set of asset classes, investment styles, and geography,
• use of leverage and derivatives designed to improve returns and mitigate risks,
• reliance on in-house risk management functions, and
• competitive compensation with the private sector to attract and retain talent.

Interestingly, and perhaps not surprisingly, three of the top Canadian funds (by assets under management) also made a global ‘top five’ list for transparency recently.

The ranking, called the Global Pension Transparency Benchmark (GPTB) by Top1000funds.com and CEM Benchmarking, showed Canadian funds were collectively deemed as the best for disclosure around governance and performance.

Canadian Pension Plan Investments took the second spot after the Government Pension Fund Global in Norway. In third place was Australian Super from Australia. Rounding out the top five were Caisse de dépôt et placement du Québec (CDPQ) (tied with US-based CalPERS in fourth place) and the Public Sector Investment Board (PSP Investments) in fifth place.

An article posted in the Journal of Portfolio Management by authors Alexander D. Beath, Sebastien Betermier, Chris Flynn, and Quentin Spehner, titled, ‘The Canadian Pension Fund Model: A Quantitative Portrait,’ says that between 2014 and 2018, Canadian pension funds outperformed their international peers in terms of both asset performance and liability hedging. The authors say the Canadian model is cost efficient, not necessarily low cost. Canadian funds reduce costs by managing assets in-house and then redeploying resources by growing their internal capabilities and allocating more capital to strategic assets.

This article takes a look at some of the top Canadian pension plans (by AUM on their most recent annual report).

1. CPP Investments

$570 Billion - funds (at March 31, 2023)

10.0% - 10-year annualized net return (nominal)

CPP Investments was established as an independent Crown Corporation with a clear focus: to help ensure the Canada Pension Plan (CPP) is strong and financially sustainable for the long term, safeguarding the best interests of CPP contributors and beneficiaries. It was created by an Act of Parliament in 1997 to invest and grow the Canada Pension Plan (CPP) Fund to help build a foundation for Canadians’ retirement security.

The most recent triennial report by the Chief Actuary of Canada says the CPP is financially sustainable for the next 75 years.

“The organization’s ability to deliver these steady long-term results was founded on the decision in 2006 to pursue active management,” says Dr. Heather Munroe-Blum, chairperson of CPP Investments, in the organization’s 2023 annual report. “In fiscal 2023, we examined the impact of inflation, climate technologies, and emerging market priorities and prospects to ensure that the associated risks and opportunities were fully accounted for. The board also supported management’s efforts to mitigate risks arising from the ongoing war in Ukraine, supply chain disruptions, cybersecurity threats, human capital shortages, and the growing impact of climate change.

“Since its inception nearly a quarter of a century ago, CPP Investments’ reputation as a Canadian success story has been hard earned. The ‘Canadian model’ for pension management is now envied around the world. This success was built on the generations of employees, senior leaders, and directors who have all contributed their expertise and commitment as custodians in service of a truly enduring organization, in support of a great public cause.”

2. Caisse de dépôt et placement du Québec (CDPQ)

$401.9 billion – net assets (at December 31, 2022)

8.0% 10-year annualized return

CDPQ was created in 1965 by an Act of the National Assembly of Québec to manage assets for public and parapublic depositors. It currently manages investments for 48 depositors.

“While there was a pronounced slowdown in transaction volumes around the world, it was an active year in Quebec,” says Charles Emond, president and chief executive officer at CDPQ. “To give us a clear ambition in the market we know best, we have announced our intention to increase our Quebec assets to $100 billion by 2026. This means that we will go further in our role with local businesses and implement leading and beneficial projects for our economy.

“We also continued our efforts in sustainable investing, including on the climate front. Today, our portfolio has over $300 billion of assets in low-intensity sectors, and we have essentially completed our exit from oil production. As the urgency of the transition becomes ever clearer, we continue to take actions that are making a difference, while being profitable for our depositors. CDPQ’s sustainable approach is increasingly recognized internationally, as evidenced by our position at the top of the World Benchmarking Alliance’s rankings, which includes some 60 large pension funds.”

3. Ontario Teachers' Pension Plan Board

$247.2 billion in net assets

8.5% 10-year total fund net return

In the 1980s, the Ontario government initiated intensive reforms to modernize the administration and investment of public pension plans. Ontario Teachers’ was created with the opportunity to engage in a richer and more diversified approach to asset allocation. The organization is an arm’s length pension organization from the government.

“Challenges for global investors increased dramatically in 2022. The year was punctuated by geopolitical conflicts, trade tensions, supply chain disruptions, rising inflation and energy supply issues,” says Steve McGirr, chair of Teachers’. “These major shifts significantly altered the investment landscape. While our portfolio was not immune to the headwinds, we were able to deliver a positive return.

“As rising inflation dominated the landscape in 2022, the topic became an increasingly dominant theme in our boardroom and our investment strategy. Inflation poses a real risk for the plan, impacting both our assets and our liabilities. In a high inflationary environment, securing real returns becomes more difficult and our pension obligations rise. The plan’s early strategic investment decisions to reduce our exposures to fixed income assets in favour of ones that offer some inflation protection positioned us well to weather the inflation shock. Our inflation-linked assets were a key driver to our positive returns in 2022.”

4. PSP Investments

$ 243.7 billion - net assets under management

9.2% 10-year net annualized return

PSP Investments was founded in 1999 and has become one of Canada’s largest pension investment managers. It grew from a small organization, investing in public markets and fixed income, to a large global institutional investor overseeing a diverse portfolio across multiple asset classes, with a talented team of international experts. PSP manages the amounts transferred to it by the government of Canada for the funding of benefits earned from April 1, 2000, by members of the public sector pension plans of the federal Public Service, the Canadian Forces (Regular Force), the Royal Canadian Mounted Police (RCMP) and, since March 1, 2007, the Canadian Forces (Reserve Force).

“Our strategy involves diversification by geography, sector, and investment products, which was key to maintaining stability in the exceptionally volatile financial markets of the past year,” says Deborah K. Orida, president and chief executive officer of the organization. “We take into account the need to protect against inflation and other risks that could threaten long-term returns. 

“We expect the new year to be another challenging one for investors, with central banks’ fight against inflation dominating the economy and financial markets, the ongoing war in Ukraine, and rising geopolitical tensions causing disruption and uncertainty. Working with the board, our leadership team is planning to refresh our corporate strategy in the new fiscal year to capitalize on the opportunities that will undoubtedly arise and to position the organization for long-term success in line with our mandate.”

5. British Columbia Investment Management Corporation (BCI)

$233 billion gross assets under management (at March 31, 2023)

8.5% 10-year annualized return

Founded in 1999, BCI is a statutory corporation created by the Public Sector Pension Plans Act. The plan is based in Victoria, BC, with offices in Vancouver, BC; New York City, NY; and London, UK. BCI manages a portfolio of diversified public and private market investments on behalf of its 32 British Columbia public sector clients.

“BCI’s portfolio of diversified public and private market investments, most of which are actively managed in-house, allow a flexibility and responsiveness to changing market conditions that helped us deliver strong performance,” says Gordon J. Fyfe, chief executive officer and chief investment officer at BCI. “It is a testament to the exceptional calibre and commitment of our team, and their ability to adapt to abruptly changing circumstances, that we were able to skillfully navigate through the turbulence.

“While seeking out opportunities to leverage BCI’s competitive advantages, namely our ample liquidity and long-term investment horizon, to capture quality investments at fair prices, we intensified our focus on providing downside protection for clients’ assets through stringent risk management.

“We advanced several significant measures on the environmental, social, and governance (ESG) front this year. BCI’s ESG governance policy was revised by the board of directors working with management, and we released an updated version of our climate action plan. As well, we appointed our first global head of ESG.”

As well, “given today’s exceedingly competitive environment with respect to human capital, we are focusing on talent risk management and retention. Working with our board of directors, we revised BCI’s compensation philosophy, including incentive elements, to bring them in line with current industry best practices. Other talent-related initiatives included the implementation of career pathing for team members and advancing succession planning in the senior ranks of the organization.

“What remains clear is that we will continue seeing a more difficult landscape for investors. Nevertheless, BCI is capable of again rising to the challenge, and our clients can rely on us to be forthcoming with respect to whatever twists and turns the path forward takes.”