Canadian pension giant warns against UK plan to push schemes into private equity

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The head of one of the world’s biggest pension funds has said UK retirement plans should not be told where to invest their money, as the government sets out plans to funnel more cash into unlisted assets and early-stage companies.

John Graham, president and chief executive of the Canada Pension Plan Investment Board, which has C$576bn (£337bn) in assets, told the Financial Times he was opposed to “any constraint on portfolio construction” or “any influence to invest in a specific asset class or a specific part of the market”.

His comments come as the UK government tries to increase returns for long-term pension savers and unlock an additional £75bn from retirement plans for investment in high-growth businesses.

In last month’s Autumn Statement it announced it will revise guidance to the £360bn Local Government Pension Scheme (LGPS), setting a new goal to double its allocation to private equity to 10 per cent.

The government also supported an agreement announced in July — the so-called “Mansion House” compact — between nine of the UK’s largest defined contribution pension providers representing more than £400bn in assets. This committed them to allocating 5 per cent of the assets in their default funds to unlisted equities by 2030.

However, some schemes said the higher costs of investing in unlisted companies could push up their own fees and deter investors. Nest, the UK government-backed workplace pension fund, said it preferred proven business models to early-stage venture capital.

Huge pension funds in Canada and Australia have been held out as examples that UK schemes could follow to improve returns.

Graham said the key to the Canadian model has been its “governance, scale and a return-focused mandate that gives us the freedom to invest wherever we see the best chance of returns.

“There is no asset allocation or security selection being done from outside of the organisation,” he added.

CPPIB — which is independent of the Canada Pension Plan, whose assets it invests — has a large in-house investment team and operates at arm’s length from federal and provincial governments.

Since being set up in 1999 with just C$12mn (£7mn) in assets, it has grown rapidly. While it does not publish its returns since launch, over the past decade it has delivered annualised returns of 9.6 per cent. Graham said its size had been “a tremendous advantage”, adding: “Scale provides access to the world’s best managers, opportunities and talent.”

CPPIB is one of the world’s largest investors in private equity, which has been an important driver of returns. It invests with external managers and also invests directly in private companies in North America and Europe.

Among CPPIB’s holdings are large investments in the funds of US firms Blackstone and Apollo among others. It is also invested in assets such as German media company Axel Springer and Merlin Entertainment, the owner of sites including Legoland and Madame Tussauds.

“People invest in private markets because of returns, they don’t need to be mandated if they have the right governance,” said Graham.

He added that the UK government needed to promote a stable environment for investors in order to encourage foreign flows into the country.

This week UK Prime Minister Rishi Sunak hosted more than 200 executives at the Global Investment Summit in London, including Blackstone boss Stephen Schwarzman, Goldman Sachs chief executive David Solomon and JPMorgan’s Jamie Dimon. Sunak highlighted nearly £30bn of long-term investment pledges by international companies.

Graham said: “If you want more private investment, you need stability. We like to see governments around the world creating a stable regulatory and tax regime that facilitates long-term investment.”