The Canada Pension Plan Investment Board is looking to use its long investment horizon and global reach to take advantage of economically disruptive forces, from advancing technology to aging populations, chief executive Mark Machin told a business audience at the Canadian Club in Toronto on Tuesday.
“CPPIB looks through a very large telescope to discover the large structural changes and shifts happening in the world that will fundamentally change how we all work and live,” Machin said, citing an acceleration of technological change encompassing machine learning, automation and big data.
Other disruptors CPPIB is keeping a close eye on — both for the potential to profit and to mitigate risks — are climate change, aging populations and economic power shifts in North America, Europe and Asia.
“Because we are placing enormous bets, sometimes in the billions of dollars, we need to be expert at what I call the implications business: predicting the future so we can benefit from its growth and profit from it for the benefit of Canada’s millions of pensioners,” Machin said, according to a copy of his prepared remarks.
For example, the pension investment management organization, which invests funds for the Canada Pension Plan, is looking at the “value chain” that will be created by self-driving cars, “whether it’s managing fleets of trucks, electric vehicle producers and their chargers, toll road, gas stations, or insurance,” Machin said.
CPPIB has already invested in Zoox, an autonomous vehicle company headquartered in California that aims to have a fleet of robo taxis available by 2020.
In the financial services space, the fund management organization has an investment in Square Capital, a subsidiary of payment processing company Square Inc. Square uses machine learning and vast amounts of data to determine what loans to extend to small businesses.
Grappling with the disruptive implications of an aging population — some two years after Canadian seniors outnumbered Canadian children for the first time in history and when a girl born in China today has a one in two chance of living to 100 — CPPIB invested in ORPEA, a European provider of long-term care services with 800 facilities.
“These demographic shifts carry profound economic, social, health and political implications, both good and bad,” Machin said.
Another investment he says “made sense” in this era is Viking River Cruises, which caters to retirees seeking travel adventures with more than 60 cruise vessels traversing rivers and oceans around the world.
Machin, who spent 22 years in Hong Kong and Beijing, is keeping a close eye on Asia, which is expected to account for more than half the world’s GDP by 2030.
He recounted being “giggled” at in a Beijing coffee shop in September when he tried to pay for his purchase using cash.
“China has rapidly moved to a cashless society,” he said, noting that CPPIB has boosted its investments in China over the past decade to represent about eight per cent of the portfolio.
In addition to an early and profitable investment in e-commerce powerhouse Alibaba, CPPIB has what Machin called a “less known but equally promising” partnership with residential and rail developer Longfor Group in China, which has projects in Suzhou, Chongqing, Shanghai and Chengdu.
“There’s a huge demand for modern, quality rental housing for young professionals and new graduates in China,” he said. “Through this collaboration, we have the opportunity to participate in this fast-growing sector of Chinese real estate.”
To take advantage of the global shift to renewable and clean energy, CPPIB established a power and renewables group last year to expand the portfolio with investments in renewables including wind and solar power, energy storage systems, smart meters and related technologies. Recent investments have been made in India and Brazil.
CPPIB is not only looking abroad as it tracks disruption, Machin said, noting a new partnership forged with the Creative Destruction Lab (CDL) at the University of Toronto’s Rotman School of Management to help the pension management organization gain information about emerging technologies in the artificial intelligence and energy sectors.
CDL connects science-based ventures with serial entrepreneurs, angel investors and venture capitalists with the aim of building “massively scalable companies,” Machin said.
Machin concluded his speech by saying CPPIB will use its size and scale to be a “disruptor” in five business and social arenas: climate change, water conservation, human rights, executive compensation and board effectiveness.
He said he believes the organization can affect more change through “engagement” than through divestment if companies in which CPPIB invests “are not operating at the standards they should be.”
He cited recent examples of the power of engagement, including joining other global investors to push for improvement in water use in agricultural supply chains, address child labour and safety concerns, and successfully encouraging 21 Canadian companies to add women to their boards of directors.
“We’ll continue to monitor improvements in the representation of women directors on the board of our investee companies and we plan to roll out this program globally,” Machin said.
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