CPPIB Can Invest Like “An 18-Year-Old”, Says CEO As Fund Looks to Cut Bond Allocation


Canada Pension Plan Investment Board (CPPIB) CEO Mark Wiseman told Bloomberg this week that his fund can invest like “an 18-year old” as he looks to cut the fund’s bond allocation and move more money into riskier assets.

CPPIB allocates 28 percent of assets to fixed income. That’s down from 95 percent 15 years ago.

More from the Bloomberg interview:

With years of income and investing ahead, the Canada Pension Plan Investment Board can afford to own more risky assets such as real estate and stocks, according to Chief Executive Officer Mark Wiseman. Pension contributions will continue to grow through 2022, allowing the fund to reduce its 28 percent holdings in fixed income, he said.

“We’re an 18-year-old investor,” Wiseman, who’s 44, said during an interview Tuesday at Bloomberg’s Toronto office. “The portfolio can afford to have less bonds than it has today.”

With yields on fixed-income securities at or close to record lows, Wiseman is joining Canada’s second largest pension plan, the Caisse de Depot et Placement du Quebec, in saying he’s looking to reduce the amount of money invested in debt to seek higher returns elsewhere.

“The low interest environment is a big challenge for institutional investors,” Wiseman said. “We can get higher risk-adjusted returns than we can in the bond market.”

The yield on Canada’s benchmark 10-year bond fell to a record 1.294 percent Friday after government data showed gross domestic product contracted in November. The central bank unexpectedly cut its key interest rate Jan. 21.

CPPIB manages $183 billion in assets.


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Japan Pension CIO Gets 60 Percent Pay Raise


Japan’s Government Pension Investment Fund (GPIF) has already indicated they will increase salaries for their money managers in a bid to attract more talent.

But the fund’s chief investment officer is getting a raise, as well. Hiromichi Mizuno, the fund’s CIO, will get a 64 percent pay bump this year.

The GPIF hopes the gesture will demonstrate their willingness to shell out cash for talent.

From Bloomberg:

Japan’s Government Pension Investment Fund will increase total annual compensation of its president to about 31 million yen ($260,000), including salary, bonuses and allowances, according to calculations by Shinichiro Mori, a director at the fund’s planning section. That compares with 18.9 million yen previously slated for the year ending March 31, Mori said by phone. The pay increase is effective this month, he said.

Boosting pay may help the pension fund hire more money managers from the private sector as it shifts more of its $1.1 trillion from bonds to riskier assets. Even after the increase, the GPIF’s top official will be paid almost 40 percent less than the chief executive officer at the California Public Employees’ Retirement System, the largest U.S. public pension.

“Compared with global standards and given the responsibility as the top asset manager, the amount still isn’t that big,” said Tetsuya Sakabe, managing director at recruitment adviser Kanae Associates Ltd. in Tokyo. “But it’s positive to see that they’ve improved the compensation structure and the amount is reasonable enough to avoid incurring criticism from the public.”


GPIF won flexibility from the health ministry last March to pay higher salaries.

“GPIF decided the president’s new pay standard after a comprehensive review taking into account consistency with other public organizations,” including the central bank, Mori said in the phone interview on Jan. 6. For the CIO, “we took into account the trend at private financial firms in order to secure highly professional human resources, without exceeding the pay level for the president.”

The GPIF manages $1.1 trillion in assets and is the largest pension fund in the world.


Photo by Ville Miettinen

Japan Pension Begins Search For New Money Managers


The end of 2014 was a busy period for Japan’s Government Pension Investment Fund (GPIF). The fund overhauled its asset allocation and will be putting 50 percent of its assets in equities while cutting its bond holdings.

In a related move, the fund will be looking for a new crop of money managers to handle investment duties, and the GPIF is willing to shell out more money for better talent.

Businessweek reports that the GPIF could begin recruiting managers officially next month. From Businessweek:

Japan’s Government Pension Investment Fund may use a private seminar next month to inform potential job applicants as part of its efforts to recruit professional money managers to the world’s largest investor of retirement savings.

Yasuhiro Yonezawa, chairman of the investment committee at the $1.1 trillion fund, is expected to discuss GPIF’s reforms and the qualifications it wants from future staff, said Nobukiyo Akiyama, an executive at Kotora Co., a Japanese executive search firm that’s organizing the Feb. 13 event.

GPIF is seeking to hire experienced investors as it shifts to riskier assets from bonds in anticipation of faster inflation under Prime Minister Shinzo Abe. Hiromichi Mizuno, a former partner of London-based private-equity firm Coller Capital Ltd., became its first chief investment officer this month.

“The fund will have to obtain professionals that have know-how and skills for private equity, venture capital and real-estate investments following the reform, besides back-office staff,” Akiyama, manager of the chief executive officer’s office at the Tokyo-based executive search firm, said in an interview yesterday. “That’s a very specialized area.”

Kotora, which has 20,000 job seekers registered with the firm, plans to invite 80 individual and corporate clients from the asset-management industry to the seminar, which will be held in Tokyo, Akiyama said.


The pension fund won flexibility last year to pay higher salaries to attract investment staff instead of government officials.

The GPIF plans to hire about 40 new managers, according to Businessweek.

The fund manages $1.1 trillion in assets and is the largest pension fund in the world.


Photo by Ville Miettinen via Flickr CC License

Biggs: Public Pensions Take On Too Much Risk


Andrew Biggs, former deputy commissioner of the Social Security Administration and current Resident Scholar at the American Enterprise Institute, penned a column for the Wall Street Journal this week in which he posed the thesis that public pension funds invest in too many risky assets.

To start, he compares the asset allocations of an individual versus that of CalPERS. From the column:

Many individuals follow a rough “100 minus your age” rule to determine how much risk to take with their retirement savings. A 25-year-old might put 75% of his savings in stocks or other risky assets, the remaining 25% in bonds and other safer investments. A 45-year-old would hold 55% in stocks, and a 65-year-old 35%. Individuals take this risk knowing that the end balance of their IRA or 401(k) account will vary with market returns.

Now consider the California Public Employees’ Retirement System (Calpers), the largest U.S. public plan and a trendsetter for others. The typical participant is around age 62, so a “100 minus age” rule would recommend that Calpers hold about 38% risky assets. In reality, Calpers holds about 75% of its portfolio in stocks and other risky assets, such as real estate, private equity and, until recently, hedge funds, despite offering benefits that, unlike IRAs or 401(k)s, it guarantees against market risk. Most other states are little different: Illinois holds 75% in risky assets; the Texas teachers’ plan holds 81%; the New York state and local plan 72%; Pennsylvania 82%; New Mexico 85%.

The column goes on:

Managers of government pension plans counter that they have longer investment horizons and can take greater risks. But most financial economists believe that the risks of stock investments grow, not shrink, with time. Moreover, while governments may exist forever, pensions cannot take forever to pay off their losses: New accounting rules promulgated by the Governmental Accounting Standards Board (GASB) and taking effect this year will push plans to amortize unfunded liabilities over roughly 15 years. Even without these rules, volatile pension investments translate into volatile contribution requirements that can and have destabilized government budgets.

Yet public-plan managers may see little option other than to double down on risk. In 2013 nearly half of state and local plan sponsors failed to make their full pension contribution. Moving from the 7.5% return currently assumed by Calpers to the roughly 5% yield on a 38%-62% stock-bond portfolio would increase annual contributions by around 50%—an additional $4 billion—making funding even more challenging.

But the fundamental misunderstanding afflicting practically the entire public-pension community is that taking more investment risk does not make a plan less expensive. It merely makes it less expensive today, by reducing contributions on the assumption that high investment returns will make up the difference. Risky investments shift the costs onto future generations who must make up for shortfalls if investments don’t pay off as assumed.

Read the entire column here.


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The Effect of Age On Portfolio Choices

Graph With Stacks Of Coins

Does a person’s willingness to hold risky assets diminish as they grow older and get closer to retirement? How does aging affect portfolio choices?

A paper published in the October issue of the Journal of Pension Economics and Finance aims to tackle those questions.

The authors analyzed administrative data from an Italian defined-contribution plan spanning 2002-08. Here’s what they found:

We studied investors’ portfolio choices in a very simple real-world setup. Some results prove quite robust across all the empirical exercises we performed. In particular, we found a pronounced tendency to choose safer portfolios as people age. This effect is still there after controlling for several demographic factors, for time effects, and for the sub-fund chosen in the previous period. This result is broadly in line with other micro-evidence from the US market, and is consistent with models of life-cycle rational portfolio allocation.


The effect of age is more pronounced in the last years of the sample. This might be due to the fact that investors learn form the experience of their colleagues. Indeed, in our sample there have been periods of disappointing stock market performance. Having seen that people who retired during these bear market periods have been severely hit might have pushed investors toward a more active behaviour. A better understanding of this form of learning appears to be an interesting issue for further research.

But not all plan participants reduced risk as they approached retirement. From the paper:

Not all elderly people in our sample reduced their exposure to risk. Looking at the ones present in the sample from the start, it turns out that more than 30% of the elderly workers who were exposed to stock market risk in 2002 were still exposed to it in 2008. As the stock market events of the last decade show, an elderly worker taking risk on the stock market could pay a high price if stocks fall. This evidence suggests that life cycle funds could be a valuable instrument, given that they automatically bring all the participants toward less risky allocations as they get near to retirement (Viceira, 2007). In the Chilean system, for example, a lifecycle fund is the default option for all the workers. Moreover, the riskiest sub-funds are closed to individuals older than a certain age.

The authors also found that job position and education are factors that play into people’s risk choices:

People with a higher position tend to take more risks. This tallies with previous empirical analyses and can be consistent with optimal portfolio allocation. We also found that education has no clear impact on portfolio choices, even if it slightly increases the likelihood of switching for those in the zero-shares sub-funds. The weakness of this effect could be due to the easy set up provided by the fund, and/or to strong social interaction effects, in which the financial skills of the educated employees who make up most of our sample also benefit the few uneducated participants.

Read the entire paper, titled “the effect of age on portfolio choices: evidence from an Italian pension fund”, here.


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