John Graham – Evolution of the Canadian Model at CPPIB – (EP.465)
Summary
Investment Strategy: CPPIB focuses on maximizing total return at a given level of risk over the long run by blending a variety of idiosyncratic portfolios and ensuring optimal total portfolio exposure.
Canadian Model: The Canadian model emphasizes being an active asset manager, building internal teams, and partnering with the best globally to achieve higher net returns.
Portfolio Management: CPPIB employs a total portfolio approach, solving for the highest total return at the portfolio level rather than focusing on individual asset class returns.
Global Expansion: CPPIB has expanded its offices globally to access differentiated opportunities and alpha, committing to long-term partnerships in various geographies.
Risk Management: The organization is cautious about concentration risk, particularly in AI, and maintains a diversified portfolio to manage equity and fixed income correlations.
Governance and Stakeholder Management: CPPIB maintains strong governance by adhering to its mandate and engaging with key stakeholders, ensuring independence in investment decision-making.
Climate and AI: CPPIB incorporates climate considerations into investment processes and is building organizational literacy in AI to enhance productivity and investment decisions.
Transcript
We're not just giving out an asset allocation and a bunch of benchmarks and managing active risk against it and trying to you know maximize the information where we are actually trying to maximize a total return at a given level of risk over the long run. One of the challenges is we execute through a series of strategies private and public decisions get made kind of bottom up and we can get kind of a collection of idiosyncratic portfolios and then we blend them all together and kind of see what we got knowing that looking past the very simple asset class labels looking what we have from a geography perspective looking what we have from an asset class perspective and I know where the team thinks a lot about is how do we actually have an then have an optimal total portfolio and that we have the right exposures in the total portfolio. We have the right allocations in the total portfolio. [Music] >> John, thanks so much for joining me. >> Well, thank you so much for having me. >> Why don't you take me back to your background before getting into the investment business? I have a non-traditional background and having listened to many of your shows, I know that's probably a common theme also. I have a PhD in physical chemistry. actually worked as a research scientist for almost nine years writing papers probably have 25 30 US patents largely in kind of photovoltaic solar cell area and worked in the uh for Xerox innovation group which at the time was one of the great industrial research labs in the world and so spent the first part of my career as a true scientist. How did that lead you to getting involved in investing? >> I started pre-.com in science and pre-.com working in the I guess the technology world and uh did love it and still have a real affinity for it but we company obviously went through some tough times post.com and some of it was idiosyncratic to the company itself. companies sent me to get my MBA and I started to work in strategy and alliances which was involved more at how do you prioritize the technology portfolio? How do you allocate capital across the portfolio? How do you look at internal versus external? When do you license? When do you buy? When do you develop? So some really interesting challenges on how to allocate capital. And I got a call one day from a head hunter and saying, "Would you be interested in coming and talking about a role at a pension plan and my first reaction was John Graham's a really common name? Are you sure you have the right John Graham?" And like, "Yeah, we're pretty sure. We're pretty sure we got the right John Graham." So, I went and I met with the team at CPPIBib or CPP Investments. It was only a couple hundred people. still had a reasonably large asset base of probably around 80 billion dollars, but they were one office in Toronto and just starting out. And I remember meeting them and kind of being blown away and blown away by the organization and what it could be, the governance model it had, the ambition it had. And this organization had the capability to be great and not just great on a Canadian scale, but great on a global scale. So here was an opportunity to get in very early without a traditional background in finance or investing more kind of at this point a kind of corporate executive. So I took a huge step backwards said what do I have to lose made the jump over to CPP investments and started out as a you know mid30s associate. >> What was your path from that initial foray to later becoming CEO? I went into the group at the time. It was called portfolio design and investment research and it was essentially the portfolio construction group and I was helping with the characterization of of asset classes. Now, very soon after joining, within a couple years, I moved over to credit and helped the uh head of credit at the time, Mark Jenkins, build out the credit investments. And I focused quite a bit on royalty and maybe non-traditional type of credit investments. A little bit more esoteric based on my background, the ability to kind of read patents, understand patents, but was given lots of opportunity to try other things, to try other parts of the credit markets, spent quite a bit of time working on the portfolio construction within credit. Uh had opportunities to work in strategy, in business management. And so I did lots of lateral move, always trying to expand my skill set, always trying to kind of develop as a person and a professional. Then eventually was asked to take over the credit group. This was the I call it more the direct lending group, the non-investment credit, the non-investment corporate credit group. Then about 8 nine years ago, they brought all the credit together within CPP investments. We had public credit, we had real estate credit and they created a credit investments department which I was had the privilege of running and I did that for for a few years and was successful with that and thanks to the the great team I had and then uh just over four years ago came into the role of CEO. as you go through that trajectory of learning the business, investing in credit, finding some esoteric credit, then running the credit group, becoming CEO. How did you distill what you learned either as a scientist or a credit investor along the way that formed your ability to go from say an analyst to a portfolio manager to leading teams? There are a few things I'd comment on and I did work as a scientist for about nine years and there are very few things I know with certainty in my life and one of them is I don't do science anymore because in science there's an answer where we can do an experiment and someone in Japan and the US and Europe can do the same experiment and get the same answer. Investing is about in some ways predicting the future because we don't have data on the future. And so it's about inference. It's about judgment and it's about making choices. And that was actually a very helpful thing for me to have done science and know that this is different. I don't fall in love with the models. I don't fall in love with the quantitative outputs because they are there to help guide what is ultimately going to be a decision and a choice. So obviously I had to learn more the investing business and I was very fortunate to have mentors and very fortunate to have people along the way and investing is an apprenticeship business. You don't learn it in school. So I learned it on the ground and and one of the great things about CPP investments is you see lots of opportunities. So we had lots of reps and so you learned made mistakes learned and so was able to get that on the ground training and uh build portfolios and do okay with that. One of the things I also learned in my corporate life and my corporate life was a company that was at the time between close to 100,000 people a true multinational. It was complex and at CPP Investments we're only 2,000 people. Well, it's actually a pretty small place relative. When I started it was 230 people. The learning you have of navigating a very complex organization has served me well. And I probably had more training from the corporate world in managing people in leadership in some of these softer skills which maybe they put more emphasis on in in the early training that also I think served me well as I went through my career at CPP Investments. What are some of your favorite softer skills that you picked up along the way? >> The one I would like to say is being really effective at giving feedback. I'm still working on that. That is still a work in progress. I can be more timely and I can probably be more direct with my feedback. The one area that I have learned is to be situational and to read the situation and know what type of leadership is required in that situation. There are times when the leadership style needs to be a little bit directive, a little bit pace setting. There's times when the leadership style needs to be pretty empathetic. There's times when people need to, you know, have their tires pumped. And there's times when people need to be pushed a little bit in the back. And when I've watched great leaders, they have an incredible instinct for that situation. They all have a preferred habitat. They all have a style they would like to use, but they know that at times it'll be maybe ineffective or not as effective as it could be. And as one progresses through their career, one also realizes that as you become senior, you're leading leaders and you're leading very senior people and people who are leaders themselves. And that takes a very different approach than managing new grads. And so the softer skills that I've learned through is to be situational. And your leadership approach has to evolve as you evolve. and grow through through your career. >> How do you describe the difference in leading leaders from managing someone who isn't leading a group? I'm a big believer in delegation and on the investment side we we delegate decisions into the people who are at the coal phase with a sense they have the best intuition and the best sense of where markets are pricing and we should do everything we can to delegate down to the people who are actually in the trenches. We spend you know quite a lot of time thinking about decision-m and thinking about delegation. If you ask my colleagues, they would say this is very much a work in progress. I I think we're making progress. We are thinking about it and it's a priority and we delegate and also a belief that people make decisions because we need accountability for decision-m. So we don't have committees that are making decisions other than let's say the the the investment committee. So if we're going to delegate, delegation without alignment is chaos. If one delegates decision-m and people aren't aligned to what the organization is trying to achieve, it ends up in a really a quagmire. So when I talk about leading leaders, it's about alignment. It's about ensuring that the people around the table with you are aligned with where the organization needs to go, are aligned with the objectives of the organization at that point in time. And without alignment, it's very difficult, almost damaging to delegate. >> I want to turn over to the investment framework and we talked some like when Jeffrey was on the show about the Canadian model about total portfolio approach as you step into this CEO seat. How do you think about the evolution of the approach as time has passed? A lot has been written about the Canadian model. It's been an incredibly successful model. I know Jeff shared you teachers was really the pioneer of the model and then it's been replicated by others such as us at CPP investments. If you ask people to describe the Canadian model, people might have a slightly different description of what it is. So I'll share how I think about it. I think about it as being a really an active asset manager and making that decision to really think about how to access different asset classes in different geographies around the world. Building internal teams where it makes sense. Partnering with the best people around the world where it makes sense. some of the fundamental beliefs in the model. You know, partner with the best, internalize where one has a real cost advantage, and at the end of the day, we're solving for net returns. And so, when everything shakes out, we'll have higher net returns. As I think about the Canadian model, and it's been super successful, and it's why it's been replicated in many different kind of sovereign wealth funds and institutional investors around the world. When the Canadian model was first being developed, I would say the world was a different place. Think about some of the big asset managers, the Blackstones of the world that are trillion dollar asset managers today. They were different 15 years ago. the rise of these mega asset managers across the alternative asset space, the accessibility of alternative assets, like the maturity of the private equity space compared to 15, 20 years ago. World's changed and we do spend a lot of time thinking about how we have to change, how we also have to evolve with the market around us evolving. and almost a philosophical discussion and we have at CBP investments is this challenging ourselves on identity versus purpose. Our identity as an organization is to be a multiasset class active investor global investor partnering with the best around the world. Our purpose is to contribute to the financial security and retirement of 22 million Canadians and doing that in a way which is consistent with the CPPIB act which is a piece of federal legislation in Canada that defines essentially the mandate of CPP investments which is to maximize return without undue risk of loss. Everything we do is a choice. We've made a choice to be active. We've made a choice to be global. We've made a choice to have multiple strategies because we believe that is the best way to fulfill the mandate and the purpose. But we have to challenge ourselves to make sure that the identity is always aligned to the ultimate purpose of the organization. and we aren't making decisions to preserve our identity as opposed to really being true and having high fidelity to the purpose of the organization. I have a a very simple 2x two matrix in my mind and we try to be very disciplined about this as we think about just the structure of the organization. On one axis is active versus passive and on the other axis is internal versus external. And for every strategy we run, everything we do, being very deliberate in which quadrant it falls into, don't automatically default to everything being active and internal. Don't default to everything being active and external. There's some strategies where we feel we don't have an ability. We don't have an edge. We have no right to win. And so we should have a completely outsourced model on that. There's some strategies we don't think anybody has a right to win. And there we will invest that money passively. Now we are a big fan of the partnership model where we invest with the best and then co-invest and and co-ender and that's been a very successful model. But it is important to be deliberate and on a going forward basis to think about how we're allocating all the resources in the organization not just the capital how we're allocating our money our time and our people. I'd love to pick apart some of that 2x two matrix. I think the passive stuff a little less interesting to pick apart other than where have you decided that it makes more sense to invest passively? >> Our passive portfolio has actually grown a little bit over the past few years. We've increased it slightly from probably four or five years ago. If we're just trying to get exposure to something, if we just want equities exposure, we'll do it passively. If we just want fixed income exposure, we largely do it passively. Now, now the teams do have some ability around the edges to manage those portfolios, but the expectation is that it's it's largely passive. One example where I wouldn't say it was necessarily an an active to passive other than because there's no real passive alternative is macro. We had an internal macro team. It's challenging. We're not set up. We don't have the technology stack to do. we really didn't have a a right to win. So we do invest in a few external macro managers but largely the capital that would have been allocated to that went passive. >> Yeah. On the internal management side, where are the areas that you've chosen to deploy capital internally that other people might think, well, why do you have a right to win relative to a great external manager? probably important to spend a bit of time on the partnership model because a lot of our internal is partnership and this is where the the matrix gets a little blurred and and where uh strategies will sit at the you know sit on the axes of the of the two. Take private equity as an example where we invest in the who we consider to be the best general partners around the world and then we will co-invest and co-under alongside of them and we think we have a right to win there in that we're I think we're a great partner. We're a reliable partner and we are there and quick responsive and can write a check of scale. So the partnership model is one where we think is is really valuable for us. There's certain areas where we may be a little bit more direct than others where we feel the duration of our capital, the time horizon of our capital could be an advantage, where we feel the scale of our capital could be an advantage. We have the Antar's platform within our credit investments and this was a acquisition from general GE about 10 years ago and that fit right in where we are the majority owner of it where we had a real understanding of the market and is very synergistic with our internal credit business and that's where we felt we had essentially a right to win with the team you have set up in that partnership model particularly in private equity you can imagine lots of deals getting shown to you by your partners. How have you determined what are the right type of opportunities to size up through a co-investment? So, one of my personal investment beliefs is that you want to have a really wide funnel and you know it's want to have a really wide funnel and see as many opportunities as possible. You want to have as many opportunities to say no as you can. And the team will have a partnership model where they are asked to see a lot of opportunities from the co-investment and and and co-underwriting. Then they have a very broad mandate of what to say yes to. They are looking at lots of different industries, lots of different geographies. And often when we say yes, it's not only that we like the asset itself, but we think the general partner has has a real edge in that area. You know, you're partnering with the best software general partner. You're partnering with the best industrials general partner and they're doing those type of deals. Area that I do believe is a real differentiator for organizations such as CPP investments is the breadth of the mandate. And this to me is something that's really important. We have built up over 15 20 years capabilities across I think the majority of the asset classes in the majority of the geographies private equity infrastructure real estate credit public equities hedge funds across North America Europe and Asia and I always loved it in credit when we had a breadth of mandate and we had the ability to move capital to the areas that we see the best opportunities and that breadth was But part of the value added is is is taking advantage of that breadth of not being so dogmatic that you have to always be piling into one asset class regardless of the relative value. That is the ability to move capital around to the areas of greatest relative value. >> How do you and the team determine what are those best opportunities from that wide opportunity set? It's really not easy and it is also not how most of the industry works and it it this starts to challenge people's personal identity also because it's not how the industry works in the alternative asset space often just works on an absolute return model. But we're solving something different in CPP investments. We're solving for the highest total return at the total portfolio level. And I've learned this in this job when I speak to the key stakeholders around the country. They want to know what the total return is. They aren't as interested in what the subasset class returns are. They want to know is the total portfolio okay and what's the return at the total portfolio level. So that's what we have to optimize. But the sell side is set up often by products. It's not really they're not optimizing a total portfolio. So they're selling products and we're buying products. So to actually execute on almost a relative value framework where capital could move between asset classes between public and private where we don't have hard allocations into each one. It requires a huge amount of coordination across the organization. There's almost a tax that has to be paid in the coordination tax in the organization. It means people have to be pricing risk maybe not exactly the same but at least in some comparable way. You know our CIO Ed Cass has to be able to look across the asset classes and see that asset class A is offering better relative value than asset class B. Then the department heads and the portfolio managers need to understand that this is how we're going to operate. That capital can be a little bit fluid. The challenge of that is you build out internal teams and they need to be fed. People need, you know, you can't have a team sit on their hands. They need to be fed. So, you have to find that balance of you have a fixed cost needs to be, they need capital. They need to be relevant in the market. It's really hard to come in and out of markets, but at the margin, how do you get capital to be a little bit more fluid? By geography and by asset class. What have you found most effective on the team to figure out which opportunities are bubbling up that you can add incremental capital to? Carrots always work. Incentives always work. And um we really try to celebrate to highlight to reward areas where opportunities that don't fit neatly within an individual asset class are um really highlighted. And again, rewarding the individuals who are thinking kind of with that one fund or enterprise mindset, but also knowing that we're asking people within their asset class to deliver the best returns they can within their asset class, but not to be so dogmatic and not to be so tunnel visioned into their asset class that if they see something that might be interesting to another group or can share, then putting their hand up and say we should look at it. We've seen great success, let's say, between our private equity and our credit group. And there's a natural synergy there, right? Where they're in the same areas. You obviously have to be careful with information at times, but there the level of connectivity between our credit and our private equity team today versus even 5 years ago when I ran it is just much better. We're seeing great connectivity across our real assets team, our infrastructure team, our energy team, and our real estate team working together. uh live examples are data centers is data center real estate is it infrastructure is the constraint is energy. So rather than having you know discussions about where it fits the real assets team just does data centers and they staff it with people from from each group. When you get to thinking about how to align the team to work together for that common portfolio goal, you get right to incentives and compensation. There's always been an interesting question of in an internal pension model, how do you hire and retain the people you want? >> Yeah. >> Um, and how has that played out over the last several years? >> Yeah. Nothing sharpens the mind like compensation. This will always be a challenge. The we don't pay carry and so we don't have the same pay structure as a general partner. We don't pay promote. So we don't have the same pay structure as a as a hedge fund. But people are compensated fairly and people are compensated well and everybody's mother is proud of them for working at CPP Investments. But it is a challenge and that gets back to the right to win and where to play. Play in areas where the constraints on the organization do not cause you to lose the game. So it's why in the private equity space we play a partnership model where we work with the best. We don't compete with the GPS. The private equity space is such a well-developed large mature market and the partnership model works really well. Our private equity professionals have a great career and a super fascinating role, but they are solving for something slightly different than a GP. So, we're eyes wide open that our compensation system um while people are paid in the Canadian model fair, they aren't paid like they would be at a general partner or a hedge fund and so ensure that the strategy that we run doesn't put us in a situation where we're fundamentally disadvantaged. How does that look outside of private equity and the correlary say real estate infrastructures in public markets on the equity side or fixed income? It's a challenge we have and as you know markets become super hot and then sometimes not super hot and they eb and flow. Take credit. I mean, credits became really hot and our credit group was a little bit more direct than our our private equity group and they still do follow somewhat of a partnership model and so that puts stress into the system undoubtedly put stress into the system. We always try to be competitive as competitive as we can knowing that it's sometimes we're just not. And I think people have an incredible career at CPP Investments. The senior people have an opportunity to be on a platform that has incredible breadth, scale, reputation, brand. For people with creativity, for people who want to innovate, it's incredibly motivating for young people entering the investing space. You'll see tons of reps, tons of opportunities. But there's some people who who really do want to have that opportunity to work at a at a general partner and I say God bless them. And one of the things I have also a firm believer of at CPP Investments is once a CPPI are always a CPPIRE. And so we've really tried to cultivate the alumni network. We're only 2,000 people. Not everyone will spend their whole career here, but I want everybody to always feel like they're part of the CPPIB family. In the situations where you've decided that you couldn't compete effectively internally, what does that look like? Both the decision process and then the process of finding who you want to partner with externally. The process is generally dictated by returns and realized returns. It's interesting because at the end of the day, you need to allocate to those programs you think you're going to make money in the future, not just in the past, right? I'm always asking the teams is two questions. How did you make money? And how are you going to make money? And it might not be the same answer. So, there's a tendency in attribution and in all the great analytics people do for it to always be backward-looking. Now, the first clue that you're not going to make money going forward is usually that you didn't make money historically. It's usually the first clue. But there are cases where you may want to scale back because you just are watching a decay in performance and you know that freight train is coming at you and so you have to make the difficult decision. Now what we often try to do is move people around and put them into other groups. We typically have had focused groups that al are external allocators. In the hedge fund world, it's our external portfolio management group and that's a focus group and they they really allocate to external managers. And on the private equity side, we have a funds group that allocates to external. It's rarely kind of co-mingled within the group that they're doing funds and and direct. There are some instances, but it's they're usually separate groups. So the funds team, the external team, if we did want them to expand, we would give them that mandate to expand and then they would go off and find the managers. There's this interesting dichotomy between talking about how you want that cross fertilization of your internal teams improving and this separate team going out with external managers. How have you thought about the crossover and potential value creation between what you can learn from the external managers you've selected and your internal teams? One thing I would say when I talk about the east west connectivity is exactly that it's exactly taking the knowledge that is embedded in that funds team and driving it through the organization. So not only from a providing an access to opportunities but also an access to knowledge, an access to information. Obviously partnering with external managers, we focus on the net returns but we do pay fees and carry and we have an expectation of partnership that we will learn things just about macro that we will learn things about geopolitics. We'll learn things that are important for how we that's part of the reason we do it. You work with the best around the world and I will spend a lot of time with the leaders of these firms not going through their portfolio but trying to understand how they're thinking about I said geopolitics how they're thinking about the macro environment how they're thinking about these big mega trends in the in the industry. So that's a real focus of mine is the expectation that these teams that are our external portfolio management team and our funds team that they are kind of diffusing the knowledge and the information through the rest of the organization. It's hard though. It's really hard when you look at that 2x two matrix today. What types of strategies fill the box of active external? active external on the public side. A lot of the the quant strategies, they have some macro strategies. They do have some equity strategies in there. A lot of the strategies there, we would we may run some very small kind of programs on the side of it, but those those are really where we're looking to the external managers. Coming back to the private equity model, again, I'm a big believer and I think it's worked really well. partner with the best private equity managers and then do co-investing and co-underwriting with them. So that's what I meant by kind of the it starts to blur a little bit in private equity that funds portfolio is like the sun and the rest of the department kind of rotates around it. When you bring this all together in the portfolio approach for CPB, you have this total funds management approach slightly different from asset allocation model. What's your way of thinking about how that works? >> We are solving for the highest total return at the the total portfolio and the total portfolio approach is solving for that. It's very consistent with the trying to maximize the total return at the total portfolio level. You know, we're not just giving out an asset allocation and a bunch of benchmarks and managing active risk against it and trying to, you know, maximize the information row. We are actually trying to maximize a total return at a given level of risk over the the long run. And one of the challenges is we execute through a series of strategies private and public and decisions as I mentioned get made kind of bottom up and we can get kind of a collection of idiosyncratic portfolios and then we blend them all together and kind of see what we got. and knowing that looking past the very simple asset class labels, looking what we have from a geography perspective, looking what we have from an asset class perspective and I know where the team thinks a lot about is how do we actually have an then have an optimal total portfolio and really that we have the right exposures in the total portfolio. We have the right allocations in the total portfolio. We still have a mechanism to get the alpha through security selection but then we have an ability to manage the total portfolio. So we have the again the the right exposures we we want. How do you think about the process of moving capital around there's a you have teams internal selected managers external and it's a large portfolio. Things change in the markets. I describe it as a super tanker to people in that it's very hard to be nimble with a 700 plus billion dollar portfolio and what we need to do is build a portfolio that is resilient through a broad range of macroeconomic conditions and when it sees something it doesn't like it just hits it and and runs it over. Uh we we can't really move it that quickly. With respect to one of the messages I do try to deliver internally and having kind of experienced this for the past 20 years it seemed you know every asset class will have its moment in the sun every geography will have its moment in the sun it'll also have its moment in the shade and you can't kill a program every time it goes into the shade or you won't have anything after so many years. So it is expected that capital may not always be uniform into into a given area. There's a big cultural aspect to it on how to think about and how to think about capital coming in and out. We build internal teams. It's a we have people. It's their livelihoods and they want to do transactions and they were hired to do transactions. It's a very reasonable expectation. So moving capital around there's a big cultural component to it. Where I see it working really well would be within the departments. So credit credit is they're really good at moving capital around. We're saying we think structured credit is more attractive than corporate credit. We think European credit or Asian credit is more attractive than North American credit. So we're going to move capital around. and they're incented to do that cuz they're incented at the credit portfolio level. So, it's a lever they have to, you know, get more carrots within our real assets between energy, infrastructure, and real estate. An ability for them to think about where they're seeing the best value within that. When you start to cross between asset classes, it's a little bit more challenging, but there is a there is an opportunity for larger opportunities where you might be able to move capital in. Just to add to the challenge, you've also expanded offices globally. What have been the challenges in making that work? >> We have a handful of offices outside of Toronto. And again, this was a choice. We made a choice to open offices because we believe it'll lead to higher net returns for the portfolio. The reason we believe that is it will give us access to markets give us access to specifically the best partners and the best opportunities in those markets that from a even a risk management perspective if you're going to build a reasonably sized portfolio in India you should have feet on the ground in India flying in and out is often not a recipe for success so if we're going to commit. We'll commit and we'll have an office. We have the offices to get differentiated access. And we talked to it's not to get beta. We can get beta from screens in Toronto. We can get beta through swaps and ETFs. We need alpha. We open the offices to get alpha to get local knowledge, local relationships, you know, local opportunities. It's not just about doing transactions in the country. It's about doing transactions that will ultimately add alpha. I think our footprint is very much a a differentiator. I think it's a real asset we have. But one has to go into it eyes wide open. When we move into specifically a geography, our reputation at CBP Investments as a long-term partnership driven organization, we're getting married to the geography. We're committing to it and we can't come in and out. And so, we better have a lot of conviction that we're going to be able to scale that and we'll be able to get differentiated opportunities. And we also will bring in some, you know, we'll we'll bring in some people from other offices often to to set it up. So, similar to the asset classes, we put in a fixed cost needs to be fed. So, you have to be comfortable that you're going to have to feed it pretty much all the time at some level and then have that optionality to accelerate in when things look really attractive. >> So, the more reps you get in any investment opportunity set, the more likely you are that something along the way won't work. As you've expanded geographically into different offices, how have you thought about measuring success and what period of time would cause you to reverse a decision that you fully intended was going to be for a long term? >> This is something we have been spending quite a bit of time on. And when we do launch a new strategy, when we launch a a new initiative is at the beginning essentially being very trying to be very deliberate on what is the range of reasonleness because we all know that if we say we're going to do a review in 2 three years to see how it's working, there's probably going to be some revisionist history on what exactly we are trying to do probably going to be some new fact pattern on what the metrics of success will be which is totally uh expected and it's also very hard with in this business that there is a range of outcomes something could be working and you still haven't made money on it. So we have these you know trying to be quantitative these these range of reasonableness that this is the range of outcomes that we would actually expect and if it's outside of that then it should really generate a a question. We actually have it for all almost all our programs when something goes out of the range of reasonleness saying that this is e either we're super good at this or we're not and we should have a have a discussion about it. We do try to pre-wire that, you know, say that discussion and three years if we're going to make a go no-go. What's the decision criteria going to be and put them down on paper now, not in 2 years and, you know, 11 months as to what the decision criteria are are are going to be. How have you thought about your participation over time in emerging markets? Emerging markets have always been a pretty big part of the CBB investment portfolio and recently we have scaled back our over the past few years we actually scaled back our allocation to emerging markets. It's still reasonably large compared to many funds. I think we're about 15%. But it's not as large as it once was. And a lot of our appetite for emerging markets historically was a larger appetite for China than we have today. And now you can debate whether the world's second largest economy should be fitting into the emerging market bucket because again back to looking through just the asset class labels. So we had we had an appetite for for a allocation into the world's second largest economy in general. you know all the reasons people like emerging markets of growth and convergence the the rationale people give for emerging markets so we've been investing in it we have an office in Sa Paulo an office in Hong Kong and an office in Mumbai so we've also been reasonably active from a alpha perspective the teams have done great the beta returns probably haven't been exactly what people wanted over the past few years they seem to be turning around a little bit now at this point in time so we kind of right sized what we wanted for the portfolio. >> When you have an overriding objective of trying to get the highest net return with gi given level of risk, there are all these decisions that you can imagine would lean people to incrementally taking more risk. How do you manage that tension? We are risk targets. We can't build a portfolio, you know, and then just lever it up to beat a benchmark. That comes down to really discipline. build the best portfolio we can, the most diversified portfolio we can, and then we do use some leverage to tailor the risk in the portfolio. I mean, we're big believers in diversification. Diversification is an act of humility. You know, we we do want to be diversified across geographies, across asset classes. We continue to be a believer in diversification despite the fact that being invested in a handful of stock in the US equity markets would have been the best choice over the past 10 years. We continue to believe that going forward we should be diversified. >> One of the long-held strengths of the Canadian model has been the governance structure that allows the delegated authority for you and the team to go about investing. There have been a couple incidents over the last few years where that something in the governance structure of one of the plans looked like from the outside at least it was going ary. I'd love to hear how you've thought about continuing to maintain a strong governance structure once it was set up that was very conducive for successful investing. One thing that I know I firmly believe in and the rest of the CPP investments management and board believes in is we need to execute on the mandate as written in the CPPIB act. It's not ours to apply apply a modern interpretation to. It's our job to maintain fidelity and discipline to the reforms that happened in 1997 to create CPP investments. And that says to maximize return without undue risk of loss. And it creates a governance construct where we have we are independent with respect to investment decision-m. So we don't have government involvement with respect to investment decision-m. We also have a professional board of directors. a board of directors that is largely composed of ex very senior business professionals from across Canada. It has been our experience that we operate with independence and we don't have political interference in our decision-making. That's a fact. And you know, I've been I've been there for 18 years and that's that's a that's how it's it's operated. But we also take the perspective that we need to be accountable and we have really important stakeholders across the country. CPP investments is a provincial federal construct. One of the best examples of the provinces and the federal government coming together to solve a problem. We have stewards that are the provincial finance ministers and the federal finance minister and they're really important stakeholders and they care deeply about the plan and they take their role very seriously. So we spend a lot of time on stakeholder management. That doesn't mean we have influence in our investment decision-m but we understand that we have to these are important stakeholders and at the end of the day the organization needs to be accountable for the decisions it makes for the money it spent spends and delivering on the what's in the CPPIB act with respect to governance you got to know who your stakeholders are and you're going to have to spend time with and you have to spend a lot of time with them. You know, I think about stakeholders for us are being, you know, for me in my role, I got the employees, the board, the stewards, and the 22 million Canadians that rely on the plan. And so you have to do stakeholder management. And always say, ignore even though you may be independent, ignore a stakeholder at your own peril. >> Yeah. I'd love to ask you about two very topical areas that have changed over time. One is climate investing and the other of course AI climate that used to be a couple years ago tip of the tongue for everyone has receded a little bit in interest. How have you gone about thinking about the importance of climate in your investment process? Yeah, it's a great question and the short answer is nothing's changed and nothing's changed in our investment process. And even getting back to the our governance construct is we have a sole fiduciary mandate. We're about value, not values. We don't do concessionary capital. We don't do impact funds. We're about value. We're about returns. And so we continue to think it's important to incorporate climate considerations right now, specifically physical risk into portfolio construction and security selection. And we ask every team to to think through it. Just think about the impact on the insurance markets with physical risk and and how that's impacting the value of certain assets and whether we think that's being priced properly in the market. We continue to invest in renewable energy around the world. We continue to see it as a interesting investment opportunity where it needs to stand on its own two feet. If it if it can only exist because of some type of subsidy, then we shouldn't invest in it. But there the economics make a lot of sense in places around the world. And so we continue to invest in it. We also continue to invest in oil and gas and we have a big oil and gas portfolio. The world from our perspective is going through an energy addition. not necessarily an energy transition, an energy addition. And I think AI is really amplifying that in that we need more energy and we should look to add sources of energy that are reliable, safe, and ideally green. But we also invest in oil and gas and we recently announced a transaction with LG. For us, what has been really important is let's just say what we're doing. Let's just focus on returns, focus on value, not values, and we'll be okay. >> How have you thought about AI? Both use cases internally and then investment opportunities externally. >> Like most companies, we're spending a lot of time on it. I would describe where we are is at that trying to build a literacy and a fluency in the organization. We've given everybody in the organization all the tools. We have given them training and given them the expectation that we want everybody to be literate. We want everybody to be incorporating it into their kind of daily work. And I think we're seeing great examples of productivity at the individual level like like many challenge now is that top down. What do we think could be a little bit transformative to the business? Are there certain areas where we think it could have a bigger impact than others? We have we're using it in the investment committee. We're doing all the I think all the right things and now challenging ourselves a little bit on the on the top down. It's always that fine balance, right? A thousand flowers blooming, giving people the tools or doing super cool things. At some point, you got to have some way to kind of hurt it all together and see what uh what it all adds up to. We'll hit at some point, we'll probably hit the diminishing returns. So, really committed to it internally, really focused on it. On the investing side, it's a good question. We we obviously have exposure in the portfolio. We have invested in a lot of the big AI companies and we have exposure to them. Net net though, we don't have as much AI exposure as the broader public markets in the portfolio. And that's a challenge from a relative performance perspective, but that's a deliberate decision we're making. Not that we don't think this is a transformative technology, not that we don't think that it could change the world, but we are a little bit concerned about the potential concentration risk in the portfolio. And thinking about who we are and what our mandate is, you know, we're not a wealth maximizing vehicle. There's times when a pension plan and a personal account may deviate, and this might be one of those times where we're thinking about over, you know, the 75 year time horizon. If we don't get it exactly right, it's okay because we're not going to imperil the fund if we don't get exactly right by not being exposed at the market cap weighted level. If we're a little bit under though, it's going to hurt our relative performance. But this is a case we're getting back to who we are and what we're solving for. I think it's just important that that that we're going into this eyes wide open. It's why many institutional investors around the world right now on a quoteunquote relative basis can't keep up because they don't want to concentrate at the same level into the market and and I don't know the market could be right. I don't know you I ask the teams all the time and I I get lots of different answers and say a technology can change the world and still be overvalued. >> You mentioned using AI in the investment committee. How do you do that? Like many people, we, you know, we we can train the models on all of our historical investment recommendations and such and then can ask the the model to ask questions and we we can do that. We we can get the model to ask questions and just to kind of prep or people will use to summarize it. Personally today I found it interesting. not all that I haven't been super impressed I guess by the quality of the questions but that's okay because part of the value it I think it makes the investment committee pick up their game a little bit because we can put the memo into the model and get 10 questions in about one minute and whatever we paid for that license is you know hundreds of dollars and so we can ask investment committee members you better have a question better than these and cuz we got these questions in one minute and you're bringing 20 years of experience. So I think it actually will help with the efficiency and the quality but I don't think I think we still got to look to the experienced investors for having that intuition. >> What are some of the risks and maybe particularly contrarian risks that you're worried about in the portfolio? >> Contrarian risks in the portfolio. contrarian risks in the market that I'm worried about right now. What do you mean by contrarian risk? >> Just could be risk, but by definition, if you're worried about it, other people may not be because I think we are worried about some of the a lot of the same things as other people. That's why I'm hesitating. I I I think we have a lot of the same concerns as other people. >> What are those? Well, equity fixed income correlations. The institutional model is built on fixed income being a diversifier and the way we run the portfolio and the total portfolio approach. There's a lot of fixed income in there. So, we think a lot about that equity fixed income correlation. That's been one of the, you know, take it to the bank kind of correlations over the years for institutional investors, for Canadian investors, the US dollar. And again, one of the take it to the bank behaviors we've had is the US dollar strengthening against the Canadian dollar in periods of stress and that's provided a lot of diversification into the portfolio. We've witnessed some times over the past year where it didn't behave exactly that way and we have largely not hedged our currencies. We we view them as diversifying assets. So while others might be more active in hedging, we haven't been as active. We still believe it's a diversifier. You know, we think there's a a tendency to think of things as black and white, like something goes from a reserve currency to not. And there's a lot of gray in between those two. But it's something we're thinking a lot about. These are the things that really move the portfolio. How we think about currencies and and how we think about kind of some of these fixed income equity correlations. >> As you see things that are that important potentially changing, what actions do you take differently from where you've been positioned leading into it? >> Maybe it gets back to the super tanker analogy. because we don't move quickly and even on things like this we don't move quickly and how many times have we heard in our career that this time it's different and then it turns out it's not and we spend a lot of time and money on moving portfolios around to just roundtrip back to where they they were at some point. We actually try to be quite disciplined and maybe almost programmatic in how some of these get evaluated and move into the portfolio. So we would not look at it and then overnight flip the portfolio dramatically based on currency. What you would see with us and maybe this is incrementalism you know maybe it has it it has its own challenges is things will slowly move. Allocations will you'll start to see them clicking down over time. You our China allocation went from about 12 to 7 but that we didn't go 12 to 7. We we we kind of slowly moved it down from 12 to 7. As you look out over the next couple years, having been in the seat for several, how do you think about continuing to make the imprint that you want onto CPPIB as over the next couple years? >> I work at the privilege, you know, that the pleasure of the board and uh for as long as they allow me to be in this seat. And as I think about the role and I think about CPP investments, we need to be here 75 years from now. We can't fail. 22 million people rely on the plan, but we can't be complacent and we can't be a victim of like creative destruction in the market. So we have to create this like risk-taking at the grassroots level and this experimentation and risk-taking at the grassroots level. with stability at the global level. And I think it's one of the great challenges we have. And one of the ways that I think about it and we talk about as a senior team is because we have to be here 75 years from now. We're not a founder culture. We're almost the exact opposite of a founder culture that our job is to put in place an organization that in many ways will be able to operate like indep like independently of the people who are there in the past, right? We can't become totally dependent on a few people. So you know it's not the right word but we have to kind of institutionalize because we have to be there in 10 years there in 15 years there in 20 years and so I think that also that mentality of singing we're not a founder culture of a little bit of the discipline of when we make choices we're not making a choice for us we're making a choice for the people who are in these seats because the one inevitable future we know is we won't be in these seats forever. And there should be, if we've done our jobs right, dozens of people in these seats in the future. And we need to make choices for them. And we need to be in some ways forgotten to history at some point. And that's how we think about it is it it it can't be a cult of personality, which is interesting because investing is a people business. It it can be very anchored into individuals. So, how do you really think about the the business of investing and creating an institution that invests that isn't so dependent necessarily on the individuals? >> And John, I want to make sure I get a chance to ask you a couple closing questions. What's your first paid job and what did you learn from it? >> My first paid job was I worked at a gas station. And what did I learn from it? I learned that people will try to rob you. It's important to lock the door at 9:00 p.m. and it's important to put the extra cash in a safe and and that is that is what I learned from that job and I I have carried that to this day. There are bad guys out there. >> What's the best advice you've ever received? It was a mentor who who said you you're a kind of a hard charging pace setting person and when people ask you to do something you're going to say yes because that's going to be your instinct is just to say yes and you're going to always have lots of balls in the air and somebody's going to ask you to put another ball in the air and you're going to say yes and you're going to have a lot of balls in the air and eventually one of those balls is going to fall and you're going to see it as a failure and they're going to see it as a failure but The failure was putting that ball in the air the first time. So, you will need to learn to say no in your career. >> What's your biggest investment pet peeve? One of my biggest investment pet peeves is a belief, a tendency that you can diligence a bad investment into a good investment. that if you just do enough diligence and keep working at it that you can figure out a way to make it work. You you get too committed early on, maybe you fall victim to a familiarity bias and you just convince yourself that uh you can do it as opposed to just saying no early. Just saying no, this there life's too short and we got to step away. In credit, I would see it and look, some people have been very successful at it and have done it well. I've also seen many examples where individuals convince themselves they can structure a bad opportunity into a good opportunity and you end up spending an incredible amount of time and in the end you still have like a structured turd. What life lesson have you learned that you wish you knew a lot earlier in life? So maybe a slight variation on that question is I the one of the things that I I wish I knew when I came into this role slight variation on on the question if that's okay is sometimes stop and enjoy the moment. these roles, this career, this industry. It's amazing and it provides incredible opportunity and you get to do incredible things. You get to meet incredible people, but you're so focused on the next thing that you never stop and just marinate in the situation and just enjoy it. And I've been trying to do more of that of sometimes just stop and and reflect on how fortunate you are. And uh what an amazing opportunity this is. >> John, last one. If the next five years or a chapter in your life, what's that chapter about? >> The CPP investments book needs to be a really big book. Needs to be a really really long book. It it you know trilogy. It needs to have hundreds of chapters. And we're in we're still in the early chapters because we're only 25 years old. So what's the next chapter about? It's actually about setting up the chapter after it. There's no there's no conclusion to that chapter. It is a chapter in a long story. It's not the last chapter. And what we have to do at CPP Investments is ensure that the next chapter starts out from a position of strength. >> Well, John, thanks so much for taking the time. >> Thank you. It was great. Thank you. [Music]
John Graham – Evolution of the Canadian Model at CPPIB – (EP.465)
Summary
Transcript
We're not just giving out an asset allocation and a bunch of benchmarks and managing active risk against it and trying to you know maximize the information where we are actually trying to maximize a total return at a given level of risk over the long run. One of the challenges is we execute through a series of strategies private and public decisions get made kind of bottom up and we can get kind of a collection of idiosyncratic portfolios and then we blend them all together and kind of see what we got knowing that looking past the very simple asset class labels looking what we have from a geography perspective looking what we have from an asset class perspective and I know where the team thinks a lot about is how do we actually have an then have an optimal total portfolio and that we have the right exposures in the total portfolio. We have the right allocations in the total portfolio. [Music] >> John, thanks so much for joining me. >> Well, thank you so much for having me. >> Why don't you take me back to your background before getting into the investment business? I have a non-traditional background and having listened to many of your shows, I know that's probably a common theme also. I have a PhD in physical chemistry. actually worked as a research scientist for almost nine years writing papers probably have 25 30 US patents largely in kind of photovoltaic solar cell area and worked in the uh for Xerox innovation group which at the time was one of the great industrial research labs in the world and so spent the first part of my career as a true scientist. How did that lead you to getting involved in investing? >> I started pre-.com in science and pre-.com working in the I guess the technology world and uh did love it and still have a real affinity for it but we company obviously went through some tough times post.com and some of it was idiosyncratic to the company itself. companies sent me to get my MBA and I started to work in strategy and alliances which was involved more at how do you prioritize the technology portfolio? How do you allocate capital across the portfolio? How do you look at internal versus external? When do you license? When do you buy? When do you develop? So some really interesting challenges on how to allocate capital. And I got a call one day from a head hunter and saying, "Would you be interested in coming and talking about a role at a pension plan and my first reaction was John Graham's a really common name? Are you sure you have the right John Graham?" And like, "Yeah, we're pretty sure. We're pretty sure we got the right John Graham." So, I went and I met with the team at CPPIBib or CPP Investments. It was only a couple hundred people. still had a reasonably large asset base of probably around 80 billion dollars, but they were one office in Toronto and just starting out. And I remember meeting them and kind of being blown away and blown away by the organization and what it could be, the governance model it had, the ambition it had. And this organization had the capability to be great and not just great on a Canadian scale, but great on a global scale. So here was an opportunity to get in very early without a traditional background in finance or investing more kind of at this point a kind of corporate executive. So I took a huge step backwards said what do I have to lose made the jump over to CPP investments and started out as a you know mid30s associate. >> What was your path from that initial foray to later becoming CEO? I went into the group at the time. It was called portfolio design and investment research and it was essentially the portfolio construction group and I was helping with the characterization of of asset classes. Now, very soon after joining, within a couple years, I moved over to credit and helped the uh head of credit at the time, Mark Jenkins, build out the credit investments. And I focused quite a bit on royalty and maybe non-traditional type of credit investments. A little bit more esoteric based on my background, the ability to kind of read patents, understand patents, but was given lots of opportunity to try other things, to try other parts of the credit markets, spent quite a bit of time working on the portfolio construction within credit. Uh had opportunities to work in strategy, in business management. And so I did lots of lateral move, always trying to expand my skill set, always trying to kind of develop as a person and a professional. Then eventually was asked to take over the credit group. This was the I call it more the direct lending group, the non-investment credit, the non-investment corporate credit group. Then about 8 nine years ago, they brought all the credit together within CPP investments. We had public credit, we had real estate credit and they created a credit investments department which I was had the privilege of running and I did that for for a few years and was successful with that and thanks to the the great team I had and then uh just over four years ago came into the role of CEO. as you go through that trajectory of learning the business, investing in credit, finding some esoteric credit, then running the credit group, becoming CEO. How did you distill what you learned either as a scientist or a credit investor along the way that formed your ability to go from say an analyst to a portfolio manager to leading teams? There are a few things I'd comment on and I did work as a scientist for about nine years and there are very few things I know with certainty in my life and one of them is I don't do science anymore because in science there's an answer where we can do an experiment and someone in Japan and the US and Europe can do the same experiment and get the same answer. Investing is about in some ways predicting the future because we don't have data on the future. And so it's about inference. It's about judgment and it's about making choices. And that was actually a very helpful thing for me to have done science and know that this is different. I don't fall in love with the models. I don't fall in love with the quantitative outputs because they are there to help guide what is ultimately going to be a decision and a choice. So obviously I had to learn more the investing business and I was very fortunate to have mentors and very fortunate to have people along the way and investing is an apprenticeship business. You don't learn it in school. So I learned it on the ground and and one of the great things about CPP investments is you see lots of opportunities. So we had lots of reps and so you learned made mistakes learned and so was able to get that on the ground training and uh build portfolios and do okay with that. One of the things I also learned in my corporate life and my corporate life was a company that was at the time between close to 100,000 people a true multinational. It was complex and at CPP Investments we're only 2,000 people. Well, it's actually a pretty small place relative. When I started it was 230 people. The learning you have of navigating a very complex organization has served me well. And I probably had more training from the corporate world in managing people in leadership in some of these softer skills which maybe they put more emphasis on in in the early training that also I think served me well as I went through my career at CPP Investments. What are some of your favorite softer skills that you picked up along the way? >> The one I would like to say is being really effective at giving feedback. I'm still working on that. That is still a work in progress. I can be more timely and I can probably be more direct with my feedback. The one area that I have learned is to be situational and to read the situation and know what type of leadership is required in that situation. There are times when the leadership style needs to be a little bit directive, a little bit pace setting. There's times when the leadership style needs to be pretty empathetic. There's times when people need to, you know, have their tires pumped. And there's times when people need to be pushed a little bit in the back. And when I've watched great leaders, they have an incredible instinct for that situation. They all have a preferred habitat. They all have a style they would like to use, but they know that at times it'll be maybe ineffective or not as effective as it could be. And as one progresses through their career, one also realizes that as you become senior, you're leading leaders and you're leading very senior people and people who are leaders themselves. And that takes a very different approach than managing new grads. And so the softer skills that I've learned through is to be situational. And your leadership approach has to evolve as you evolve. and grow through through your career. >> How do you describe the difference in leading leaders from managing someone who isn't leading a group? I'm a big believer in delegation and on the investment side we we delegate decisions into the people who are at the coal phase with a sense they have the best intuition and the best sense of where markets are pricing and we should do everything we can to delegate down to the people who are actually in the trenches. We spend you know quite a lot of time thinking about decision-m and thinking about delegation. If you ask my colleagues, they would say this is very much a work in progress. I I think we're making progress. We are thinking about it and it's a priority and we delegate and also a belief that people make decisions because we need accountability for decision-m. So we don't have committees that are making decisions other than let's say the the the investment committee. So if we're going to delegate, delegation without alignment is chaos. If one delegates decision-m and people aren't aligned to what the organization is trying to achieve, it ends up in a really a quagmire. So when I talk about leading leaders, it's about alignment. It's about ensuring that the people around the table with you are aligned with where the organization needs to go, are aligned with the objectives of the organization at that point in time. And without alignment, it's very difficult, almost damaging to delegate. >> I want to turn over to the investment framework and we talked some like when Jeffrey was on the show about the Canadian model about total portfolio approach as you step into this CEO seat. How do you think about the evolution of the approach as time has passed? A lot has been written about the Canadian model. It's been an incredibly successful model. I know Jeff shared you teachers was really the pioneer of the model and then it's been replicated by others such as us at CPP investments. If you ask people to describe the Canadian model, people might have a slightly different description of what it is. So I'll share how I think about it. I think about it as being a really an active asset manager and making that decision to really think about how to access different asset classes in different geographies around the world. Building internal teams where it makes sense. Partnering with the best people around the world where it makes sense. some of the fundamental beliefs in the model. You know, partner with the best, internalize where one has a real cost advantage, and at the end of the day, we're solving for net returns. And so, when everything shakes out, we'll have higher net returns. As I think about the Canadian model, and it's been super successful, and it's why it's been replicated in many different kind of sovereign wealth funds and institutional investors around the world. When the Canadian model was first being developed, I would say the world was a different place. Think about some of the big asset managers, the Blackstones of the world that are trillion dollar asset managers today. They were different 15 years ago. the rise of these mega asset managers across the alternative asset space, the accessibility of alternative assets, like the maturity of the private equity space compared to 15, 20 years ago. World's changed and we do spend a lot of time thinking about how we have to change, how we also have to evolve with the market around us evolving. and almost a philosophical discussion and we have at CBP investments is this challenging ourselves on identity versus purpose. Our identity as an organization is to be a multiasset class active investor global investor partnering with the best around the world. Our purpose is to contribute to the financial security and retirement of 22 million Canadians and doing that in a way which is consistent with the CPPIB act which is a piece of federal legislation in Canada that defines essentially the mandate of CPP investments which is to maximize return without undue risk of loss. Everything we do is a choice. We've made a choice to be active. We've made a choice to be global. We've made a choice to have multiple strategies because we believe that is the best way to fulfill the mandate and the purpose. But we have to challenge ourselves to make sure that the identity is always aligned to the ultimate purpose of the organization. and we aren't making decisions to preserve our identity as opposed to really being true and having high fidelity to the purpose of the organization. I have a a very simple 2x two matrix in my mind and we try to be very disciplined about this as we think about just the structure of the organization. On one axis is active versus passive and on the other axis is internal versus external. And for every strategy we run, everything we do, being very deliberate in which quadrant it falls into, don't automatically default to everything being active and internal. Don't default to everything being active and external. There's some strategies where we feel we don't have an ability. We don't have an edge. We have no right to win. And so we should have a completely outsourced model on that. There's some strategies we don't think anybody has a right to win. And there we will invest that money passively. Now we are a big fan of the partnership model where we invest with the best and then co-invest and and co-ender and that's been a very successful model. But it is important to be deliberate and on a going forward basis to think about how we're allocating all the resources in the organization not just the capital how we're allocating our money our time and our people. I'd love to pick apart some of that 2x two matrix. I think the passive stuff a little less interesting to pick apart other than where have you decided that it makes more sense to invest passively? >> Our passive portfolio has actually grown a little bit over the past few years. We've increased it slightly from probably four or five years ago. If we're just trying to get exposure to something, if we just want equities exposure, we'll do it passively. If we just want fixed income exposure, we largely do it passively. Now, now the teams do have some ability around the edges to manage those portfolios, but the expectation is that it's it's largely passive. One example where I wouldn't say it was necessarily an an active to passive other than because there's no real passive alternative is macro. We had an internal macro team. It's challenging. We're not set up. We don't have the technology stack to do. we really didn't have a a right to win. So we do invest in a few external macro managers but largely the capital that would have been allocated to that went passive. >> Yeah. On the internal management side, where are the areas that you've chosen to deploy capital internally that other people might think, well, why do you have a right to win relative to a great external manager? probably important to spend a bit of time on the partnership model because a lot of our internal is partnership and this is where the the matrix gets a little blurred and and where uh strategies will sit at the you know sit on the axes of the of the two. Take private equity as an example where we invest in the who we consider to be the best general partners around the world and then we will co-invest and co-under alongside of them and we think we have a right to win there in that we're I think we're a great partner. We're a reliable partner and we are there and quick responsive and can write a check of scale. So the partnership model is one where we think is is really valuable for us. There's certain areas where we may be a little bit more direct than others where we feel the duration of our capital, the time horizon of our capital could be an advantage, where we feel the scale of our capital could be an advantage. We have the Antar's platform within our credit investments and this was a acquisition from general GE about 10 years ago and that fit right in where we are the majority owner of it where we had a real understanding of the market and is very synergistic with our internal credit business and that's where we felt we had essentially a right to win with the team you have set up in that partnership model particularly in private equity you can imagine lots of deals getting shown to you by your partners. How have you determined what are the right type of opportunities to size up through a co-investment? So, one of my personal investment beliefs is that you want to have a really wide funnel and you know it's want to have a really wide funnel and see as many opportunities as possible. You want to have as many opportunities to say no as you can. And the team will have a partnership model where they are asked to see a lot of opportunities from the co-investment and and and co-underwriting. Then they have a very broad mandate of what to say yes to. They are looking at lots of different industries, lots of different geographies. And often when we say yes, it's not only that we like the asset itself, but we think the general partner has has a real edge in that area. You know, you're partnering with the best software general partner. You're partnering with the best industrials general partner and they're doing those type of deals. Area that I do believe is a real differentiator for organizations such as CPP investments is the breadth of the mandate. And this to me is something that's really important. We have built up over 15 20 years capabilities across I think the majority of the asset classes in the majority of the geographies private equity infrastructure real estate credit public equities hedge funds across North America Europe and Asia and I always loved it in credit when we had a breadth of mandate and we had the ability to move capital to the areas that we see the best opportunities and that breadth was But part of the value added is is is taking advantage of that breadth of not being so dogmatic that you have to always be piling into one asset class regardless of the relative value. That is the ability to move capital around to the areas of greatest relative value. >> How do you and the team determine what are those best opportunities from that wide opportunity set? It's really not easy and it is also not how most of the industry works and it it this starts to challenge people's personal identity also because it's not how the industry works in the alternative asset space often just works on an absolute return model. But we're solving something different in CPP investments. We're solving for the highest total return at the total portfolio level. And I've learned this in this job when I speak to the key stakeholders around the country. They want to know what the total return is. They aren't as interested in what the subasset class returns are. They want to know is the total portfolio okay and what's the return at the total portfolio level. So that's what we have to optimize. But the sell side is set up often by products. It's not really they're not optimizing a total portfolio. So they're selling products and we're buying products. So to actually execute on almost a relative value framework where capital could move between asset classes between public and private where we don't have hard allocations into each one. It requires a huge amount of coordination across the organization. There's almost a tax that has to be paid in the coordination tax in the organization. It means people have to be pricing risk maybe not exactly the same but at least in some comparable way. You know our CIO Ed Cass has to be able to look across the asset classes and see that asset class A is offering better relative value than asset class B. Then the department heads and the portfolio managers need to understand that this is how we're going to operate. That capital can be a little bit fluid. The challenge of that is you build out internal teams and they need to be fed. People need, you know, you can't have a team sit on their hands. They need to be fed. So, you have to find that balance of you have a fixed cost needs to be, they need capital. They need to be relevant in the market. It's really hard to come in and out of markets, but at the margin, how do you get capital to be a little bit more fluid? By geography and by asset class. What have you found most effective on the team to figure out which opportunities are bubbling up that you can add incremental capital to? Carrots always work. Incentives always work. And um we really try to celebrate to highlight to reward areas where opportunities that don't fit neatly within an individual asset class are um really highlighted. And again, rewarding the individuals who are thinking kind of with that one fund or enterprise mindset, but also knowing that we're asking people within their asset class to deliver the best returns they can within their asset class, but not to be so dogmatic and not to be so tunnel visioned into their asset class that if they see something that might be interesting to another group or can share, then putting their hand up and say we should look at it. We've seen great success, let's say, between our private equity and our credit group. And there's a natural synergy there, right? Where they're in the same areas. You obviously have to be careful with information at times, but there the level of connectivity between our credit and our private equity team today versus even 5 years ago when I ran it is just much better. We're seeing great connectivity across our real assets team, our infrastructure team, our energy team, and our real estate team working together. uh live examples are data centers is data center real estate is it infrastructure is the constraint is energy. So rather than having you know discussions about where it fits the real assets team just does data centers and they staff it with people from from each group. When you get to thinking about how to align the team to work together for that common portfolio goal, you get right to incentives and compensation. There's always been an interesting question of in an internal pension model, how do you hire and retain the people you want? >> Yeah. >> Um, and how has that played out over the last several years? >> Yeah. Nothing sharpens the mind like compensation. This will always be a challenge. The we don't pay carry and so we don't have the same pay structure as a general partner. We don't pay promote. So we don't have the same pay structure as a as a hedge fund. But people are compensated fairly and people are compensated well and everybody's mother is proud of them for working at CPP Investments. But it is a challenge and that gets back to the right to win and where to play. Play in areas where the constraints on the organization do not cause you to lose the game. So it's why in the private equity space we play a partnership model where we work with the best. We don't compete with the GPS. The private equity space is such a well-developed large mature market and the partnership model works really well. Our private equity professionals have a great career and a super fascinating role, but they are solving for something slightly different than a GP. So, we're eyes wide open that our compensation system um while people are paid in the Canadian model fair, they aren't paid like they would be at a general partner or a hedge fund and so ensure that the strategy that we run doesn't put us in a situation where we're fundamentally disadvantaged. How does that look outside of private equity and the correlary say real estate infrastructures in public markets on the equity side or fixed income? It's a challenge we have and as you know markets become super hot and then sometimes not super hot and they eb and flow. Take credit. I mean, credits became really hot and our credit group was a little bit more direct than our our private equity group and they still do follow somewhat of a partnership model and so that puts stress into the system undoubtedly put stress into the system. We always try to be competitive as competitive as we can knowing that it's sometimes we're just not. And I think people have an incredible career at CPP Investments. The senior people have an opportunity to be on a platform that has incredible breadth, scale, reputation, brand. For people with creativity, for people who want to innovate, it's incredibly motivating for young people entering the investing space. You'll see tons of reps, tons of opportunities. But there's some people who who really do want to have that opportunity to work at a at a general partner and I say God bless them. And one of the things I have also a firm believer of at CPP Investments is once a CPPI are always a CPPIRE. And so we've really tried to cultivate the alumni network. We're only 2,000 people. Not everyone will spend their whole career here, but I want everybody to always feel like they're part of the CPPIB family. In the situations where you've decided that you couldn't compete effectively internally, what does that look like? Both the decision process and then the process of finding who you want to partner with externally. The process is generally dictated by returns and realized returns. It's interesting because at the end of the day, you need to allocate to those programs you think you're going to make money in the future, not just in the past, right? I'm always asking the teams is two questions. How did you make money? And how are you going to make money? And it might not be the same answer. So, there's a tendency in attribution and in all the great analytics people do for it to always be backward-looking. Now, the first clue that you're not going to make money going forward is usually that you didn't make money historically. It's usually the first clue. But there are cases where you may want to scale back because you just are watching a decay in performance and you know that freight train is coming at you and so you have to make the difficult decision. Now what we often try to do is move people around and put them into other groups. We typically have had focused groups that al are external allocators. In the hedge fund world, it's our external portfolio management group and that's a focus group and they they really allocate to external managers. And on the private equity side, we have a funds group that allocates to external. It's rarely kind of co-mingled within the group that they're doing funds and and direct. There are some instances, but it's they're usually separate groups. So the funds team, the external team, if we did want them to expand, we would give them that mandate to expand and then they would go off and find the managers. There's this interesting dichotomy between talking about how you want that cross fertilization of your internal teams improving and this separate team going out with external managers. How have you thought about the crossover and potential value creation between what you can learn from the external managers you've selected and your internal teams? One thing I would say when I talk about the east west connectivity is exactly that it's exactly taking the knowledge that is embedded in that funds team and driving it through the organization. So not only from a providing an access to opportunities but also an access to knowledge, an access to information. Obviously partnering with external managers, we focus on the net returns but we do pay fees and carry and we have an expectation of partnership that we will learn things just about macro that we will learn things about geopolitics. We'll learn things that are important for how we that's part of the reason we do it. You work with the best around the world and I will spend a lot of time with the leaders of these firms not going through their portfolio but trying to understand how they're thinking about I said geopolitics how they're thinking about the macro environment how they're thinking about these big mega trends in the in the industry. So that's a real focus of mine is the expectation that these teams that are our external portfolio management team and our funds team that they are kind of diffusing the knowledge and the information through the rest of the organization. It's hard though. It's really hard when you look at that 2x two matrix today. What types of strategies fill the box of active external? active external on the public side. A lot of the the quant strategies, they have some macro strategies. They do have some equity strategies in there. A lot of the strategies there, we would we may run some very small kind of programs on the side of it, but those those are really where we're looking to the external managers. Coming back to the private equity model, again, I'm a big believer and I think it's worked really well. partner with the best private equity managers and then do co-investing and co-underwriting with them. So that's what I meant by kind of the it starts to blur a little bit in private equity that funds portfolio is like the sun and the rest of the department kind of rotates around it. When you bring this all together in the portfolio approach for CPB, you have this total funds management approach slightly different from asset allocation model. What's your way of thinking about how that works? >> We are solving for the highest total return at the the total portfolio and the total portfolio approach is solving for that. It's very consistent with the trying to maximize the total return at the total portfolio level. You know, we're not just giving out an asset allocation and a bunch of benchmarks and managing active risk against it and trying to, you know, maximize the information row. We are actually trying to maximize a total return at a given level of risk over the the long run. And one of the challenges is we execute through a series of strategies private and public and decisions as I mentioned get made kind of bottom up and we can get kind of a collection of idiosyncratic portfolios and then we blend them all together and kind of see what we got. and knowing that looking past the very simple asset class labels, looking what we have from a geography perspective, looking what we have from an asset class perspective and I know where the team thinks a lot about is how do we actually have an then have an optimal total portfolio and really that we have the right exposures in the total portfolio. We have the right allocations in the total portfolio. We still have a mechanism to get the alpha through security selection but then we have an ability to manage the total portfolio. So we have the again the the right exposures we we want. How do you think about the process of moving capital around there's a you have teams internal selected managers external and it's a large portfolio. Things change in the markets. I describe it as a super tanker to people in that it's very hard to be nimble with a 700 plus billion dollar portfolio and what we need to do is build a portfolio that is resilient through a broad range of macroeconomic conditions and when it sees something it doesn't like it just hits it and and runs it over. Uh we we can't really move it that quickly. With respect to one of the messages I do try to deliver internally and having kind of experienced this for the past 20 years it seemed you know every asset class will have its moment in the sun every geography will have its moment in the sun it'll also have its moment in the shade and you can't kill a program every time it goes into the shade or you won't have anything after so many years. So it is expected that capital may not always be uniform into into a given area. There's a big cultural aspect to it on how to think about and how to think about capital coming in and out. We build internal teams. It's a we have people. It's their livelihoods and they want to do transactions and they were hired to do transactions. It's a very reasonable expectation. So moving capital around there's a big cultural component to it. Where I see it working really well would be within the departments. So credit credit is they're really good at moving capital around. We're saying we think structured credit is more attractive than corporate credit. We think European credit or Asian credit is more attractive than North American credit. So we're going to move capital around. and they're incented to do that cuz they're incented at the credit portfolio level. So, it's a lever they have to, you know, get more carrots within our real assets between energy, infrastructure, and real estate. An ability for them to think about where they're seeing the best value within that. When you start to cross between asset classes, it's a little bit more challenging, but there is a there is an opportunity for larger opportunities where you might be able to move capital in. Just to add to the challenge, you've also expanded offices globally. What have been the challenges in making that work? >> We have a handful of offices outside of Toronto. And again, this was a choice. We made a choice to open offices because we believe it'll lead to higher net returns for the portfolio. The reason we believe that is it will give us access to markets give us access to specifically the best partners and the best opportunities in those markets that from a even a risk management perspective if you're going to build a reasonably sized portfolio in India you should have feet on the ground in India flying in and out is often not a recipe for success so if we're going to commit. We'll commit and we'll have an office. We have the offices to get differentiated access. And we talked to it's not to get beta. We can get beta from screens in Toronto. We can get beta through swaps and ETFs. We need alpha. We open the offices to get alpha to get local knowledge, local relationships, you know, local opportunities. It's not just about doing transactions in the country. It's about doing transactions that will ultimately add alpha. I think our footprint is very much a a differentiator. I think it's a real asset we have. But one has to go into it eyes wide open. When we move into specifically a geography, our reputation at CBP Investments as a long-term partnership driven organization, we're getting married to the geography. We're committing to it and we can't come in and out. And so, we better have a lot of conviction that we're going to be able to scale that and we'll be able to get differentiated opportunities. And we also will bring in some, you know, we'll we'll bring in some people from other offices often to to set it up. So, similar to the asset classes, we put in a fixed cost needs to be fed. So, you have to be comfortable that you're going to have to feed it pretty much all the time at some level and then have that optionality to accelerate in when things look really attractive. >> So, the more reps you get in any investment opportunity set, the more likely you are that something along the way won't work. As you've expanded geographically into different offices, how have you thought about measuring success and what period of time would cause you to reverse a decision that you fully intended was going to be for a long term? >> This is something we have been spending quite a bit of time on. And when we do launch a new strategy, when we launch a a new initiative is at the beginning essentially being very trying to be very deliberate on what is the range of reasonleness because we all know that if we say we're going to do a review in 2 three years to see how it's working, there's probably going to be some revisionist history on what exactly we are trying to do probably going to be some new fact pattern on what the metrics of success will be which is totally uh expected and it's also very hard with in this business that there is a range of outcomes something could be working and you still haven't made money on it. So we have these you know trying to be quantitative these these range of reasonableness that this is the range of outcomes that we would actually expect and if it's outside of that then it should really generate a a question. We actually have it for all almost all our programs when something goes out of the range of reasonleness saying that this is e either we're super good at this or we're not and we should have a have a discussion about it. We do try to pre-wire that, you know, say that discussion and three years if we're going to make a go no-go. What's the decision criteria going to be and put them down on paper now, not in 2 years and, you know, 11 months as to what the decision criteria are are are going to be. How have you thought about your participation over time in emerging markets? Emerging markets have always been a pretty big part of the CBB investment portfolio and recently we have scaled back our over the past few years we actually scaled back our allocation to emerging markets. It's still reasonably large compared to many funds. I think we're about 15%. But it's not as large as it once was. And a lot of our appetite for emerging markets historically was a larger appetite for China than we have today. And now you can debate whether the world's second largest economy should be fitting into the emerging market bucket because again back to looking through just the asset class labels. So we had we had an appetite for for a allocation into the world's second largest economy in general. you know all the reasons people like emerging markets of growth and convergence the the rationale people give for emerging markets so we've been investing in it we have an office in Sa Paulo an office in Hong Kong and an office in Mumbai so we've also been reasonably active from a alpha perspective the teams have done great the beta returns probably haven't been exactly what people wanted over the past few years they seem to be turning around a little bit now at this point in time so we kind of right sized what we wanted for the portfolio. >> When you have an overriding objective of trying to get the highest net return with gi given level of risk, there are all these decisions that you can imagine would lean people to incrementally taking more risk. How do you manage that tension? We are risk targets. We can't build a portfolio, you know, and then just lever it up to beat a benchmark. That comes down to really discipline. build the best portfolio we can, the most diversified portfolio we can, and then we do use some leverage to tailor the risk in the portfolio. I mean, we're big believers in diversification. Diversification is an act of humility. You know, we we do want to be diversified across geographies, across asset classes. We continue to be a believer in diversification despite the fact that being invested in a handful of stock in the US equity markets would have been the best choice over the past 10 years. We continue to believe that going forward we should be diversified. >> One of the long-held strengths of the Canadian model has been the governance structure that allows the delegated authority for you and the team to go about investing. There have been a couple incidents over the last few years where that something in the governance structure of one of the plans looked like from the outside at least it was going ary. I'd love to hear how you've thought about continuing to maintain a strong governance structure once it was set up that was very conducive for successful investing. One thing that I know I firmly believe in and the rest of the CPP investments management and board believes in is we need to execute on the mandate as written in the CPPIB act. It's not ours to apply apply a modern interpretation to. It's our job to maintain fidelity and discipline to the reforms that happened in 1997 to create CPP investments. And that says to maximize return without undue risk of loss. And it creates a governance construct where we have we are independent with respect to investment decision-m. So we don't have government involvement with respect to investment decision-m. We also have a professional board of directors. a board of directors that is largely composed of ex very senior business professionals from across Canada. It has been our experience that we operate with independence and we don't have political interference in our decision-making. That's a fact. And you know, I've been I've been there for 18 years and that's that's a that's how it's it's operated. But we also take the perspective that we need to be accountable and we have really important stakeholders across the country. CPP investments is a provincial federal construct. One of the best examples of the provinces and the federal government coming together to solve a problem. We have stewards that are the provincial finance ministers and the federal finance minister and they're really important stakeholders and they care deeply about the plan and they take their role very seriously. So we spend a lot of time on stakeholder management. That doesn't mean we have influence in our investment decision-m but we understand that we have to these are important stakeholders and at the end of the day the organization needs to be accountable for the decisions it makes for the money it spent spends and delivering on the what's in the CPPIB act with respect to governance you got to know who your stakeholders are and you're going to have to spend time with and you have to spend a lot of time with them. You know, I think about stakeholders for us are being, you know, for me in my role, I got the employees, the board, the stewards, and the 22 million Canadians that rely on the plan. And so you have to do stakeholder management. And always say, ignore even though you may be independent, ignore a stakeholder at your own peril. >> Yeah. I'd love to ask you about two very topical areas that have changed over time. One is climate investing and the other of course AI climate that used to be a couple years ago tip of the tongue for everyone has receded a little bit in interest. How have you gone about thinking about the importance of climate in your investment process? Yeah, it's a great question and the short answer is nothing's changed and nothing's changed in our investment process. And even getting back to the our governance construct is we have a sole fiduciary mandate. We're about value, not values. We don't do concessionary capital. We don't do impact funds. We're about value. We're about returns. And so we continue to think it's important to incorporate climate considerations right now, specifically physical risk into portfolio construction and security selection. And we ask every team to to think through it. Just think about the impact on the insurance markets with physical risk and and how that's impacting the value of certain assets and whether we think that's being priced properly in the market. We continue to invest in renewable energy around the world. We continue to see it as a interesting investment opportunity where it needs to stand on its own two feet. If it if it can only exist because of some type of subsidy, then we shouldn't invest in it. But there the economics make a lot of sense in places around the world. And so we continue to invest in it. We also continue to invest in oil and gas and we have a big oil and gas portfolio. The world from our perspective is going through an energy addition. not necessarily an energy transition, an energy addition. And I think AI is really amplifying that in that we need more energy and we should look to add sources of energy that are reliable, safe, and ideally green. But we also invest in oil and gas and we recently announced a transaction with LG. For us, what has been really important is let's just say what we're doing. Let's just focus on returns, focus on value, not values, and we'll be okay. >> How have you thought about AI? Both use cases internally and then investment opportunities externally. >> Like most companies, we're spending a lot of time on it. I would describe where we are is at that trying to build a literacy and a fluency in the organization. We've given everybody in the organization all the tools. We have given them training and given them the expectation that we want everybody to be literate. We want everybody to be incorporating it into their kind of daily work. And I think we're seeing great examples of productivity at the individual level like like many challenge now is that top down. What do we think could be a little bit transformative to the business? Are there certain areas where we think it could have a bigger impact than others? We have we're using it in the investment committee. We're doing all the I think all the right things and now challenging ourselves a little bit on the on the top down. It's always that fine balance, right? A thousand flowers blooming, giving people the tools or doing super cool things. At some point, you got to have some way to kind of hurt it all together and see what uh what it all adds up to. We'll hit at some point, we'll probably hit the diminishing returns. So, really committed to it internally, really focused on it. On the investing side, it's a good question. We we obviously have exposure in the portfolio. We have invested in a lot of the big AI companies and we have exposure to them. Net net though, we don't have as much AI exposure as the broader public markets in the portfolio. And that's a challenge from a relative performance perspective, but that's a deliberate decision we're making. Not that we don't think this is a transformative technology, not that we don't think that it could change the world, but we are a little bit concerned about the potential concentration risk in the portfolio. And thinking about who we are and what our mandate is, you know, we're not a wealth maximizing vehicle. There's times when a pension plan and a personal account may deviate, and this might be one of those times where we're thinking about over, you know, the 75 year time horizon. If we don't get it exactly right, it's okay because we're not going to imperil the fund if we don't get exactly right by not being exposed at the market cap weighted level. If we're a little bit under though, it's going to hurt our relative performance. But this is a case we're getting back to who we are and what we're solving for. I think it's just important that that that we're going into this eyes wide open. It's why many institutional investors around the world right now on a quoteunquote relative basis can't keep up because they don't want to concentrate at the same level into the market and and I don't know the market could be right. I don't know you I ask the teams all the time and I I get lots of different answers and say a technology can change the world and still be overvalued. >> You mentioned using AI in the investment committee. How do you do that? Like many people, we, you know, we we can train the models on all of our historical investment recommendations and such and then can ask the the model to ask questions and we we can do that. We we can get the model to ask questions and just to kind of prep or people will use to summarize it. Personally today I found it interesting. not all that I haven't been super impressed I guess by the quality of the questions but that's okay because part of the value it I think it makes the investment committee pick up their game a little bit because we can put the memo into the model and get 10 questions in about one minute and whatever we paid for that license is you know hundreds of dollars and so we can ask investment committee members you better have a question better than these and cuz we got these questions in one minute and you're bringing 20 years of experience. So I think it actually will help with the efficiency and the quality but I don't think I think we still got to look to the experienced investors for having that intuition. >> What are some of the risks and maybe particularly contrarian risks that you're worried about in the portfolio? >> Contrarian risks in the portfolio. contrarian risks in the market that I'm worried about right now. What do you mean by contrarian risk? >> Just could be risk, but by definition, if you're worried about it, other people may not be because I think we are worried about some of the a lot of the same things as other people. That's why I'm hesitating. I I I think we have a lot of the same concerns as other people. >> What are those? Well, equity fixed income correlations. The institutional model is built on fixed income being a diversifier and the way we run the portfolio and the total portfolio approach. There's a lot of fixed income in there. So, we think a lot about that equity fixed income correlation. That's been one of the, you know, take it to the bank kind of correlations over the years for institutional investors, for Canadian investors, the US dollar. And again, one of the take it to the bank behaviors we've had is the US dollar strengthening against the Canadian dollar in periods of stress and that's provided a lot of diversification into the portfolio. We've witnessed some times over the past year where it didn't behave exactly that way and we have largely not hedged our currencies. We we view them as diversifying assets. So while others might be more active in hedging, we haven't been as active. We still believe it's a diversifier. You know, we think there's a a tendency to think of things as black and white, like something goes from a reserve currency to not. And there's a lot of gray in between those two. But it's something we're thinking a lot about. These are the things that really move the portfolio. How we think about currencies and and how we think about kind of some of these fixed income equity correlations. >> As you see things that are that important potentially changing, what actions do you take differently from where you've been positioned leading into it? >> Maybe it gets back to the super tanker analogy. because we don't move quickly and even on things like this we don't move quickly and how many times have we heard in our career that this time it's different and then it turns out it's not and we spend a lot of time and money on moving portfolios around to just roundtrip back to where they they were at some point. We actually try to be quite disciplined and maybe almost programmatic in how some of these get evaluated and move into the portfolio. So we would not look at it and then overnight flip the portfolio dramatically based on currency. What you would see with us and maybe this is incrementalism you know maybe it has it it has its own challenges is things will slowly move. Allocations will you'll start to see them clicking down over time. You our China allocation went from about 12 to 7 but that we didn't go 12 to 7. We we we kind of slowly moved it down from 12 to 7. As you look out over the next couple years, having been in the seat for several, how do you think about continuing to make the imprint that you want onto CPPIB as over the next couple years? >> I work at the privilege, you know, that the pleasure of the board and uh for as long as they allow me to be in this seat. And as I think about the role and I think about CPP investments, we need to be here 75 years from now. We can't fail. 22 million people rely on the plan, but we can't be complacent and we can't be a victim of like creative destruction in the market. So we have to create this like risk-taking at the grassroots level and this experimentation and risk-taking at the grassroots level. with stability at the global level. And I think it's one of the great challenges we have. And one of the ways that I think about it and we talk about as a senior team is because we have to be here 75 years from now. We're not a founder culture. We're almost the exact opposite of a founder culture that our job is to put in place an organization that in many ways will be able to operate like indep like independently of the people who are there in the past, right? We can't become totally dependent on a few people. So you know it's not the right word but we have to kind of institutionalize because we have to be there in 10 years there in 15 years there in 20 years and so I think that also that mentality of singing we're not a founder culture of a little bit of the discipline of when we make choices we're not making a choice for us we're making a choice for the people who are in these seats because the one inevitable future we know is we won't be in these seats forever. And there should be, if we've done our jobs right, dozens of people in these seats in the future. And we need to make choices for them. And we need to be in some ways forgotten to history at some point. And that's how we think about it is it it it can't be a cult of personality, which is interesting because investing is a people business. It it can be very anchored into individuals. So, how do you really think about the the business of investing and creating an institution that invests that isn't so dependent necessarily on the individuals? >> And John, I want to make sure I get a chance to ask you a couple closing questions. What's your first paid job and what did you learn from it? >> My first paid job was I worked at a gas station. And what did I learn from it? I learned that people will try to rob you. It's important to lock the door at 9:00 p.m. and it's important to put the extra cash in a safe and and that is that is what I learned from that job and I I have carried that to this day. There are bad guys out there. >> What's the best advice you've ever received? It was a mentor who who said you you're a kind of a hard charging pace setting person and when people ask you to do something you're going to say yes because that's going to be your instinct is just to say yes and you're going to always have lots of balls in the air and somebody's going to ask you to put another ball in the air and you're going to say yes and you're going to have a lot of balls in the air and eventually one of those balls is going to fall and you're going to see it as a failure and they're going to see it as a failure but The failure was putting that ball in the air the first time. So, you will need to learn to say no in your career. >> What's your biggest investment pet peeve? One of my biggest investment pet peeves is a belief, a tendency that you can diligence a bad investment into a good investment. that if you just do enough diligence and keep working at it that you can figure out a way to make it work. You you get too committed early on, maybe you fall victim to a familiarity bias and you just convince yourself that uh you can do it as opposed to just saying no early. Just saying no, this there life's too short and we got to step away. In credit, I would see it and look, some people have been very successful at it and have done it well. I've also seen many examples where individuals convince themselves they can structure a bad opportunity into a good opportunity and you end up spending an incredible amount of time and in the end you still have like a structured turd. What life lesson have you learned that you wish you knew a lot earlier in life? So maybe a slight variation on that question is I the one of the things that I I wish I knew when I came into this role slight variation on on the question if that's okay is sometimes stop and enjoy the moment. these roles, this career, this industry. It's amazing and it provides incredible opportunity and you get to do incredible things. You get to meet incredible people, but you're so focused on the next thing that you never stop and just marinate in the situation and just enjoy it. And I've been trying to do more of that of sometimes just stop and and reflect on how fortunate you are. And uh what an amazing opportunity this is. >> John, last one. If the next five years or a chapter in your life, what's that chapter about? >> The CPP investments book needs to be a really big book. Needs to be a really really long book. It it you know trilogy. It needs to have hundreds of chapters. And we're in we're still in the early chapters because we're only 25 years old. So what's the next chapter about? It's actually about setting up the chapter after it. There's no there's no conclusion to that chapter. It is a chapter in a long story. It's not the last chapter. And what we have to do at CPP Investments is ensure that the next chapter starts out from a position of strength. >> Well, John, thanks so much for taking the time. >> Thank you. It was great. Thank you. [Music]