Examining an Insider’s View of Canada’s Pension Debate


Last month, the Toronto Star interviewed Tom Reid of Sun Life to get an insider’s view of Canada’s pension debate. The interview can be read here.

This week, Leo Kolivakis of the Pension Pulse blog penned his own critical examination of the debate. The post can be read below.


By Leo Kolivakis, Pension Pulse

Indeed, the Canadian Life and Health Insurance Association is hopping mad and expressed its disappointment on its website.

The problem is that the CLHIA is spreading misinformation and outright lies on the so-called benefits of defined-contribution (DC) plans. They are nowhere near as safe and secure as defined-benefit (DB) plans and they’re a lot more costly, regardless of what Reid claims. They also don’t perform as well over long investment horizons because they don’t invest in private investments.

Go back to carefully read my comment on the brutal truth on DC plans, it’s a real eye-opener. We have become so ill-informed on this debate that we accept the lies and misinformation being spread out there.

As I’ve long argued on this blog, there is a case for boosting DB plans in Canada and elsewhere. The benefits of DB plans are well-known and under-appreciated.

Importantly, boosting DB plans, especially now that Canada’s crisis is just beginning (if you wait for “better economic conditions” you will never enhance the CPP!), makes for good retirement and economic policy. Why? Because if you do it properly, adopting world class governance standards, you will enhance economic activity, increase the revenue from sales taxes and reduce the overall debt of the country.

Of course, the insurance and banking industry don’t agree and will keep pushing the Conservatives to peddle PRPPs as the solution but they’re wrong and they know it. They’re petrified of Canada’s top ten and for good reason, when you look at the evidence, our large DB plans are doing an outstanding job providing their members with safe and secure retirement benefits. No DC plan can compete with our large DB plans.

Are Canada’s top ten perfect? Of course not. If they were, this blog would never exist. But take it from this insider, given a choice between anything Prudential, Sun Life, Manulife or Canada’s big banks have to offer and having your retirement money managed by our large DB plans, you should always opt for the latter. Period.

Does this mean that banks and insurance companies should get out of the retirement business altogether and just leave it up to our large DB plans? No, I believe there is a market for what they’re doing and they can certainly compete with the internal portfolio managers at our large DB plans but they’re going to have to lower their fees and change their angle.

In fact, if banks and insurance companies in Canada were smart (they’re hopelessly myopic!) and realized the bigger picture, they would be forcing the federal government to enhance the CPP for all Canadians and boost our DB plans.

I leave you with a comment Bruce Rogers wrote to the Toronto Star in regards to the interview above:

Thanks for devoting space to Ontario’s plans for a pension to supplement the Canada Pension Plan. Too bad your effort gave the platform to an interviewee who has a financial interest in the inadequate, defined contribution approach to the problem.

Our society clearly needs to take action to ensure that retirees and seniors generally enjoy financial security and a modicum of dignity. To argue against a more generous defined benefit approach is to ignore a serious problem.

Of course, the Harper government has made its decision and Bay Street will agree with that course. Let’s hope the business pages of the Star will balance the debate in future, perhaps by exposing the growing threat to defined benefit pensions where they exist.

This is an informed reader who understands what’s at stake. When it comes to retirement policy, we need to go Dutch on pensions and not take lessons from Down Under or worse, the United States of pension poverty.

Lastly, I wish the media in Canada would start interviewing real pension experts like Jim Leech, Leo de Bever, John Crocker and others who truly understand what is at stake and why we need to boost defined-benefit plans for all Canadians.


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Canada Pension Plan Among Bidders For $10 Billion of Cement Facilities

private equity investment

The Canada Pension Plan (CPP) has teamed up with Blackstone Group and Cinven to bid on $10 billion of cement assets that are being sold as a result of a pending merger between two major building material suppliers.

The CPP is one of 60 parties who have placed bids.

From the Wall Street Journal:

Private-equity firms are jostling to acquire more than $10 billion of cement facilities being sold as part of the merger of two large European companies, reflecting the dearth of buyout deals available in the region.

The sale of the cement assets in Europe, Canada, Brazil and the Philippines are a precondition to winning antitrust approval of a $50-billion merger between French cement giant Lafarge SA and Swiss rival Holcim Ltd.

The assets have attracted interest among cash-flush private-equity firms. Some 60 parties, a mixture of buyout firms and building-materials companies, have submitted bids for all or some of the assets, said Holcim finance chief Thomas Aebischer. Private-equity bidders include Blackstone Group, KKR & Co. and other top firms, according to people familiar with the matter.


The cement deals are “sort of classic private-equity assets,” said Josh Lerner, a professor at Harvard Business School, of the Holcim and Lafarge sales. “The idea of a transaction that has the classic PE kind of recipe, where this is a mature industry, is a good thing for them.”

The deal is also attractive because it could create an entirely new cement rival overnight. Some argue creating a new company with the assets could be a challenge for buyers, since the facilities are spread across the globe and aren’t independent companies at this stage.

The $10 billion price-tag on the for-sale assets is too big for many private-equity firms to digest on their own. Many are forming groups to bid for the assets, a practice they have moved away from in recent years since investors prefer to spread their money among several funds invested in different assets.

Among the private-equity bidders are: a group consisting of Blackstone Group, Cinven and the Canada Pension Plan; BC Partners and Advent International; Bain Capital and Onex Partners; and KKR., according to the people familiar with the matter. Industry bidders include Irish cement maker CRH PLC, according to people familiar with the matter. The structure of the consortia could still change, said one person familiar with the deal.

The Canada Pension Plan has $227 billion in assets, which are managed by the Canada Pension Plan Investment Board.


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Canada Pension Invests Nearly $400 Million In Brazilian Real Estate


The Canada Pension Plan Investment Board (CPPIB), the entity that manages investments for the Canada Pension Plan, plans to invest $396 million in commercial real estate in Brazil.

From Reuters:

In a statement released late on Monday, CPPIB said the investments include the purchase of warehouses, land and stakes in development projects in the logistics and retailing industries, adding to the fund’s portfolio of more than 100 properties in Latin America’s largest economy.

The move brings CPPIB’s real estate commitments in Brazil to over $1.8 billion. Since 2009, CPPIB has bought real estate in Brazil to profit from rising demand for corporate and distribution facilities.


CPPIB will pay 507 million reais for 30 percent in a joint venture with Singapore’s Global Logistic Properties Ltd. , the world’s No. 2 owner of industrial properties, to run 32 logistics properties in São Paulo and Rio de Janeiro, the statement added.

Another 231 million reais were committed to GLP Brazil Development Partners I, a real estate investment vehicle in which Global Logistic Properties has a 40 percent stake and CPPIB a 39.6 percent stake.

CPPIB also pledged to spend 159 million reais to buy a 25 percent stake in a São Paulo logistics project alongside Cyrela Commercial Properties SA.

The fund also paid 100 million reais for a 33.3 percent stake in the Santana Parque Shopping mall, which is jointly run by partner Aliansce Shopping Centers SA, the statement added. CPPIB has a 27.6 percent in Aliansce, a shopping mall operator.

From a CPPIB statement released Monday:

“Since making our first real estate investment in Brazil in 2009, CPPIB has become one of the largest investors in the sector with ownership interests in logistics, retail, office and residential assets or developments,” said Peter Ballon, Managing Director & Head of Real Estate Investments – Americas. “Over the past 10 months, we deepened relationships with our key partners to commit additional equity in high-quality real estate assets that are important additions to our diversified Brazilian portfolio. Our team of real estate professionals based in our recently opened Sao Paulo office continues to pursue attractive investment opportunities in the region.”

The Canada Pension Plan Investment Board manages $226 billion in assets.

Canada Pension Plan Invests $325 Million in U.S. Cancer Treatment Provider

doctor instruments

The Canada Pension Plan has invested $325 in 21st Century Oncology Holdings Inc., a cancer care service provider. The details, from Reuters:

Canada Pension Plan Investment Board (CPPIB), the investment arm of Canada’s national pension plan, said on Friday it has invested $325 million in privately held radiation oncology services provider 21st Century Oncology Holdings Inc through purchases of convertible preferred shares.

Fort Myers, Florida-based 21st Century operates the world’s largest integrated network of cancer treatment centers and affiliated physician practices. It has 179 treatment centers in the United States and in six Latin America countries.

The investment will give CPPIB the right to nominate two directors to 21st Century’s board.

An active global dealmaker, CPPIB manages net assets of C$226.8 billion on behalf of the Canada Pension Plan.

More details on 21st Century Oncology,  from BusinessWeek:

21st Century Oncology Holdings, Inc., together with its subsidiaries, operates as a physician-led provider of integrated cancer care services.

As of February 19, 2014, 21st Century Oncology Holdings, Inc. operated 179 treatment centers primarily under the 21st Century Oncology brand, including 145 centers located in 16 states of the United States; and 34 centers located in 6 countries in Latin America. It was formerly known as Radiation Therapy Services Holdings, Inc. and changed its name to 21st Century Oncology Holdings, Inc. in December 2013. The company was founded in 1983 and is based in Fort Myers, Florida.


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Canada Pension Fund Gets In On Alibaba IPO, To The Tune of $160 Million

Canada blank map

There’s been a huge demand from large investors to get in on the initial public offering of Alibaba Group Holding Ltd., the Chinese e-commerce giant that conducts nearly 80 percent of China’s online commerce.

But the Canada Pension Plan Investment Board (CPPIB) – the entity that invests assets for the Canada Pension Plan – isn’t one of them. That’s because the CPPIB revealed today that it invested in Alibaba years ago.

Reported by Bloomberg:

Canada Pension Plan Investment Board said it has invested $160 million in Alibaba Group Holding Ltd. (BABA), the Chinese e-commerce company that plans to go public tomorrow.

The country’s largest pension fund manager made two direct investments in Alibaba in 2011 and 2012 for a total of $136 million, Linda Sims, a Canada Pension spokeswoman, said in an e-mail.

The pension plan has another $24 million indirect investment through a private-equity fund managed by Silver Lake Management LLC, she said.

What’s the investment worth now? The CPPIB declined to disclose the figures, saying that they won’t release that information until they sell their stake.

But according to some back-of-the-envelope calculations, the initial investment could have ballooned by up to 500 percent. From Bloomberg:

At the time of the initial investment in 2011, the Hangzhou-based Alibaba was valued at about $32 billion, people with knowledge of the matter said at the time. In May 2012, when Yahoo! Inc. sold part of its stake in Alibaba the transaction valued the company at about $35 billion.

Alibaba is expected to price its IPO at between $66 and $68 a share when it debuts on the New York Stock Exchange Friday, valuing the company at about $168 billion.

The estimated five-fold increase in Alibaba’s share price would make Canada Pension’s direct investment worth about $680 million based on the time the investments were made.

The fund manager’s indirect investment in the company is harder to calculate because the fund, Silver Lake Partners III LP, is invested in more than just Alibaba.

Alibaba’s IPO may be the world’s largest ever. The company conducts more transactions than Amazon and EBay – combined.

Group Calls For Transparency In Canadian Pensions As Investment Expenses Rise

Canada map

The Canada Pension Plan Investment Board (CPPIB) has been an active investor in private equity, real estate and infrastructure around the world. Pension360 has covered Board’s endeavors into infrastructure and real estate in India and warehouses in California.

But those kinds of investments carry fees and expenses, and one Canadian think tank is calling on the CPPIB to make those expenses clearer. From CBC News:

The report, by former Statistics Canada chief economic analyst Philip Cross and Fraser Institute fellow Joel Emes, says the Canada Pension Plan Investment Board should more clearly explain the added costs of its new approach to investing.

Beginning in 2006, the CPPIB broadened its holdings beyond traditional stocks and bonds to invest in areas such as international real estate and infrastructure projects.

That new approach resulted in an additional $782 million for external management fees and $177 million on transaction fees, the authors say.

The CPPIB, which manages the funds not needed in the near term to pay Canada Pension Plan benefits, has moved away from traditional holdings because of low interest rates that keep bond returns low, according to CEO Mark Wiseman. In the past year, it has also invested selectively in stocks because of their high valuations.

Wiseman says the “active investment” approach is needed to create value “over an exceedingly long investment horizon” and to diversify the CPPIB portfolio.

The CPPIB has invested in infrastructure projects in countries such as Brazil and India and real estate portfolios in the U.S. and Australia.

The strategy led to returns of around 16 percent in 2013. But investment expenses have spiked as a result of the active management. From CBC:

The Fraser Institute argues the CPP has faced a big hike in the cost of its investments as a result of its new strategy — from $600 million or 0.54% of assets in 2006 to $2 billion or 1.15 per cent of its assets in 2013.

That figure includes the cost of collecting the CPP from Canadian paycheques and sending benefits to pensioners.

It is being less than transparent in failing to report its external management fees and transaction costs as part of CPPIB accounts, the report says. Instead those costs appear in federal government public accounts and overall accounts for CPP.

“The CPPIB needs to be more transparent about the expense of designing and implementing its investment strategy; every dollar spent on behalf of the CPP is one less dollar available to beneficiaries,” the Fraser Institute says.

External management fees might include investment banking fees, consulting fees, legal and tax advice and taxes on transfer of real estate, which would apply to the new style of investing, but might not be as high in stock and bond investing.

The Fraser Institute, the think tank that produced the report, advocates for smaller government and greater personal responsibility.

Canada Pension Plan’s Quarterly Returns Come Up Short; New $500 Million Investment On Horizon


The numbers are in for the Canada Pension Plan’s investment performance over the first quarter of fiscal year 2015, and the country’s largest pension fund probably isn’t thrilled with the results.

The CPP returned 1.6 percent over the three month period ended June 30. Far from disastrous, the performance still falls short of its peers: the median return of Canadian pension funds over the same period was 3 percent.

In a statement, Canada Pension Chief Executive Mark Wiseman said: “All of our programs reported positive investment returns during the quarter and we continued to further diversify the portfolio globally across various asset classes.”

To that end, the Canada Pension Plan’s Investment Board also announced today that it will be allocating an additional $500 million to investments in the U.S. industrial sector.

Specifically, the investments are in warehouse facilities in high-demand areas of California that will subsequently be leased out. From a CPP press release:

The six logistics and warehouse developments GNAP has committed to are:

  • GLC Oakland – 375,000-square-foot Class-A warehouse distribution facility recently completed in Oakland, California, adjacent to the Oakland International Airport.
  • GLC Rancho Cucamonga – two warehouse distribution facilities totaling up to 1.6 million square feet in Rancho Cucamonga, California, 40 miles west of Los Angeles, in the Inland Empire West submarket.
  • Commerce Center Eastvale – three logistics warehouses providing in excess of 2.5 million square feet located in Eastvale, California, 50 miles west of Los Angeles, in the Inland Empire West submarket.
  • GLC Fontana – 640,000-square-foot warehouse distribution facility located in Fontana, California, 50 miles west of Los Angeles, in the Inland Empire West submarket.
  • GLC Compton – 100,000-square-foot distribution facility in Compton, California, a prime infill location within the South Bay submarket of Los Angeles.
  • GLC Santa Fe Springs – three warehouse distribution facilities totalling up to 1.2 million square feet located in Santa Fe Springs, California, a prime infill location within the Mid-Counties submarket in Los Angeles.

The CPP already had allocated $400 million to the Goodman North American Partnership (GNAP), a joint venture formed between the CPP Investment Board and Goodman Group.


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