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Canada Pension Plan: How Is the CPP Investment Board Securing Your Retirement?

The Canada Pension Plan (CPP) is a monthly retirement payout that aims to replace a part of your income when you retire. The amount you receive each month via the CPP depends on the average earnings throughout your work life, your contributions towards the CPP, and the age you decide to start the pension.

But have you ever wondered where does the federal government invest your CPP contributions? Your contributions towards the Canada Pension Plan are reinvested by the CPP Investment Board (CPPIB), an independent body that was established in 1997.

The CPPIB is accountable to the Canadian Parliament and to federal and provincial ministers but is governed and managed independently from the CPP and operates at an arm’s length from the government.

The CPPIB’s mandate is based on a governance structure that distinguishes itself from a sovereign wealth fund. It has an investment-only mandate which is insulated from political interference or agendas. The CPPIB management reports to an independent Board of Directors and its primary goal is to maximize returns without undue risk or loss.

Further, the CPPIB is expected to continually develop and enhance its investment strategy that balances potential risk and reward to ensure the long-term sustainability of the CPP Fund.

What is the CPP fund?

The CPPIB’s purpose is to provide a foundation on which 20 million Canadians build their financial security in retirement. Its investment strategy is designed to deliver a balanced and globally diversified portfolio that will maximize sustained long-term returns.

The CPP Fund ended June 2020 with assets under management (AUM) of $434.4 billion. At the end of 2009, the total AUM of the CPP Fund stood at $124 billion and this rose to $283 billion by the end of 2015.

The fund’s projected assets are expected to reach $880 billion in 2030 and $1.68 trillion by 2040. In fiscal 2020 ended in March, the CPP Fund’s net assets grew to $409.6 billion consisting of $12.1 billion in net income and $5.5 billion in net CPP contributions received.

Where does the CPP Fund invest your contributions?

The CPPIB invests in multiple investment vehicles including public and private equities, bonds, private debt, real estate assets, infrastructure, and much more. However, public equities account for the majority of CPPIB’s investment portfolio.

As of June 2020, public equity investments accounted for 31.2% of the CPPIB portfolio, followed by private equities, government bonds, credit, real estate, infrastructure, and other assets at 24.3%, 9.5%, 12.4%, 10.2%, 8.5%, and 3.9% respectively.

The CPPIB has invested $900 million in Hong-Kong-based AIA Group, $786 million in China’s Alibaba Group, US$600 million in Ant Financial, $143 million in China Gas Holdings, $1.15 billion in India’s banking giant Kotak Mahindra Bank and $384 million in Tencent.

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