CPP ads on NFL playoffs: your pension dollars at work for the Liberals

One cannot help noting whose interests such advertising would serve: the federal government, the driving force behind CPP 'enhancement' and increasingly applying its own brand of active management at the CPPIB

Nationalpost.com
January 8, 2019
Andrew Coyne

Canadian viewers of this year’s NFL’s wild card weekend were startled to see a certain commercial in heavy rotation. No, not the Budweiser Clydesdales, or the burger and soft drink ads that are the pricey broadcasts’ usual fare. Rather, this important message was brought to you by the Canada Pension Plan Investment Board.

“You don’t think about CPP Investment Board,” the announcer chirped, while the usual assortment of smiling Canadians went blissfully about their assorted business, “but we think about you every day.” Indeed, “while you may not think about it, you started saving for retirement with your first paycheque.” Cue the music (Great Big Sea’s “Ordinary Day”) and the slogan: “Investing today for your tomorrow.”

I don’t doubt the board can afford the cost of these spots. With $356 billion in assets under management, and billions more in contributions flooding in every year from Canadian workers and their employers, the CPP is hardly short of dough. Still, it’s not clear exactly why these ads are needed, or what they are trying to achieve.

True, the timing of the ad is suggestive, appearing as it is in the very week when workers are likely to notice the CPP taking a bigger bite out of their paycheques than ever before. Employer and employee contributions are rising from 4.95 per cent of pensionable earnings to 5.1 per cent, the first of several annual increases between now and 2023.

But the CPP isn’t a mutual fund: it doesn’t have to persuade Canadians to park their money with it. They have to, by law. No matter how irritated they may be at seeing more and more of their wages going to the CPP, there is no way they can withdraw from the plan, and no prospect of the increases being reversed. So why is the CPPIB paying -- or rather, why are we paying -- for expensive ads designed to make us feel good about all this “saving” and “investment”?

There’s no mystery where the money has gone: the CPPIB has plunged heavily into risky, illiquid investments such as private equity and public infrastructure

Sheer profligacy is certainly one possibility. Spending at the CPPIB is quite literally out of control, and has been for some years, ever since the 2006 decision to switch from passive to active management, or from simply buying every stock in the market, with the aim of doing no worse than the market averages, to picking stocks selectively in an attempt to beat the market -- a task at which, year in, year out, most investment managers fail.

Successive annual reports tell the tale. In 2000, when the CPPIB was founded (previously the CPP was confined to investing any spare change in provincial bonds) it had a staff of five. The CEO was paid $310,000. Total costs were $3.7 million. By 2006, it had about 150 employees, the CEO was making over a million, and costs were $118 million: considerably more, but not wildly out of line, for a fund that by then had nearly $100 billion under management.

And today? The board has over 1,500 employees. The average compensation among its top five executives is $4.5 million. And total costs have grown to $3.2 billion, or nearly one per cent of assets under management. By contrast, passively managed funds such as those offered by Vanguard or Schwab typically charge less than one tenth of one per cent of assets.

There’s no mystery where the money has gone: the CPPIB has plunged heavily into risky, illiquid investments such as private equity and public infrastructure, the kind that requires hiring expensive talent to assess. Whether all this extra expense will prove worthwhile is another matter. The CPPIB has beaten its own preferred benchmark, a “reference portfolio” made up of publicly traded stocks and bonds, in just seven of 12 years.

So, yes, it’s perfectly possible that amid the general carnival of extravagance at the CPPIB -- my favourite example is the length of the annual reports themselves, which have ballooned from under 12,000 words to nearly 85,000 -- a few hundred thousand dollars for useless TV ads would not have been missed. Still, one cannot help noting whose interests such advertising would serve: the federal government, the driving force behind CPP “enhancement” and increasingly applying its own brand of active management at the CPPIB -- ostensibly an independent body at arm’s-length from its federal and provincial masters.

CPP insiders whisper about the finance minister demanding meetings with the CPPIB’s board of directors, even attempting to dictate its composition. Indeed, the minister has been quite public in hinting the CPPIB might relieve the government of some of its investment in the Trans Mountain pipeline. The example of the new Canada Infrastructure Bank, another supposedly arm’s-length public investment body that shows increasing signs of politicization -- its first investment was in a Montreal light-rail project that just happened to be a political priority for the Trudeau government -- is not a happy one.

But whether the cause is internal bloat or external pressure, it is difficult to see why the CPPIB should be spending the money Canadians are forced to contribute to it on propaganda whose sole apparent purpose is to soften them up for more forcible contributing. Section 6 (2) of the Canada Pension Plan Investment Board Act stipulates that “the board and its subsidiaries shall not, directly or indirectly, carry on any business or activity or exercise any power that is inconsistent with the Board’s objects.”

Those objects are “to invest its assets with a view to achieving a maximum rate of return, without undue risk of loss” in order to “assist the Canada Pension Plan in meeting its obligations to contributors and beneficiaries.” It’s not clear those objectives are best served by the CPPIB’s current maximum-cost investment strategy, but it’s even less clear how a feel-good advertising campaign contributes to anything but Liberal election prospects.