Canada Pension Plan board president says the retirement fund is safe, despite economic downturn

‘This is one thing they should take off their list to worry about,’ says Mark Machin

CBC Radio · Posted: Apr 03, 2020 5:41 PM ET

Mark Machin, president of the Canada Pension Plan Investment Board, says that the CPP is safe from economic turmoil thanks to a diversified portfolio. (Adrian Wyld/Canadian Press)

As the COVID-19 pandemic continues to wreak havoc on the global economy, the president of the Canada Pension Plan Investment Board says Canadians' CPP contributions are safe.

"This is one thing they should take off their list to worry about," said Mark Machin.

"The fund is in strong shape. It was designed to weather these types of significant market downturns once in a while."

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The pandemic has stunted the global economy as governments order workers to stay home and shutter businesses in an effort to prevent the spread of the virus.

But Machin says that thanks to a diversified portfolio, will overcome a projected recession.
Here's part of Machin's interview with The Current's Matt Galloway.

The economic fallout is already being felt. So how is it that the CPPIB would be insulated by that?

The money we manage isn't completely insulated. So obviously as markets go down, it's likely that the funds that we have will go down. But we do a number of things.

First of all, we diversified the monies. We haven't got all our eggs in one particular market or one particular type of investment, and that provides some cushion.

For example, generally when the stock market goes down, the government bond market will strengthen. That provides some offsets.

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How much of our money is invested in oil and gas? Because we've seen the price of oil, again, drop lower and lower and lower. The gas sector taking a huge hit as well.

Not so much. About 3 per cent of the fund overall is exposed to that sector. So it's not a huge amount.

Where are you investing the pension money of Canadians?

So it's invested broadly around the world, which helps.… We're invested in the rest of North America, Russia, South America, Europe and we're invested in Asia. We're invested in bonds and we're also invested in private assets like infrastructure — relatively safe things, generally on the infrastructure front, like roads and ports and electricity and those types of things.

What are [the] industries that are doing better now than others? Because it seems as though, from a distance, that everybody is taking this hit.

There are industries that are doing fine. For example, anything to do with our delivery and logistics, particularly at-home ordering.

One company we've invested in Europe is a flavour and fragrance company that's benefited from two things. One is the rise in the buying of toilet paper and tissues because it puts the fragrance in that, and also canned soup.… The flavour that goes into that also came from this company.

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So there are certain companies that are doing well. But it is a narrow slice of companies.

And generally there's lots of companies, whether it's in travel or leisure or sports, etc., that are obviously going to suffer quite a lot. And then there's a lot in between that are going to just have dampened demand and dampened ability to do business, because all the economies in the world are shut down.

Are you predicting a recession?

Yes. So we're predicting that for the world for this year, we'll be down about 2.4 per cent growth, and Canada is going to be particularly badly hit in the second quarter of this year. So over 20 per cent decline annualized for GDP growth. So it's going to be a very steep recession.

But we think by the fourth quarter, it should be growing strongly again. And by next year, we see the world rebounding. So the world growing almost 7 per cent next year is our current number, and Canada growing over 4 per cent for next year.

But I think we've got months ahead of us to get through this.

This Q&A has been edited for length and clarity.
Written by Justin Chandler. Produced by Samira Mohyeddin.

59 Comments

David Amos
Methinks nobody should be surprised by Machin's opinion about the job he has done playing with our money N'esy Pas?

David Raymond Amos Round 3

Thursday, 9 April 2020