War of Words Over CPPIB’s Active Strategy

Keith Ambachtsheer has challenged a leading Canadian columnist following a scathing review of the Canada Pension Plan Investment Board’s (CPPIB) strategy.

Andrew Coyne of Canada’s National Post criticized the expansion of the C$278.9 billion (US$213.4 billion) pension in a column published May 18, highlighting “more staff, higher pay, rising operating expenses, and all for no appreciable payoff for the fund’s 18 million members.”

In an open letter to Coyne, KPA Advisory Founder Ambachtsheer questioned several of the columnist’s assertions, including that active management does not work.

“That is true if all participants have access to all information, and interpret and use that information identically,” Ambachtsheer wrote. “In the real world, these assumptions do not hold.”

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CPPIB, Ambachtsheer argued, purports to be “a long-term global investor with good macro and micro information sources, and an ability to turn that information into actionable investment decisions.” This particularly applies to the pension’s extensive private debt, private equity, real estate, and infrastructure portfolios.

“Active investors of this kind—rather than the buy-high/sell-low short-term traders—are a key ingredient of functional capitalism,” Ambachtsheer said. “It is these kind of investors who transform retirement savings into wealth-producing capital.”

In the past five years, Ambachtsheer stated, CPPIB’s net return after expenses was 10.6% per year, well ahead of the pension’s own reference portfolio benchmark. The reference portfolio gained C$89 billion in that period, while the actually CPPIB portfolio gained C$105 billion—a hike of C$16 billion.

CPPIB detailed the results of its active management program in an update on May 19, highlighting “solid results” since moving away from a passive-only strategy in 2006. It argued that “the CPP fund—and the people of Canada—have benefited significantly” from the change to active management and greater in-house expertise.

“Since fiscal 2006 we have generated cumulative net investment income after costs of C$125.6 billion,” the fund stated. Its figures estimated a nominal rate of return of 6.8%, and C$17 billion in “dollar value-add which would otherwise not have been available through a passive portfolio.”

CPPIB 10-year returns. (Source: CPPIB)“Do you really believe that this additional active management contribution (after all costs) to CPP’s assets over the course of the last five years represents ‘no appreciable pay-off’ due to its chosen strategic stance?” Ambachtsheer asked Coyne in the letter. “Aren’t you being a bit churlish about the significance of this value-added pay-off?”

“Well-reasoned (and well-researched) common sense has been your trademark over many years,” Ambachtsheer concluded. “By that standard, your recent CPP column was an anomaly. I wish you a speedy recovery to your old self.”