Pension funds need clarity of purpose, a representative of CPP Investments, which manages the fund backing the Canadian social security system, has said, pointing to legislation that defines the duties of the so-called Maple 8 fund.

Reforms proposed for the Local Government Pension Scheme and defined contribution funds raise questions about the purpose of pension funds, with government talk of UK growth, including productive finance, local investment and surplus release, muddying the waters of fiduciary duty.  

On a panel about the Pensions Investment Review at the same conference, Joanne Gibson, who heads up the review in the Treasury, responded to a question about growth and fiduciary duty saying the government was not trying to undermine choice but making productive finance part of the investment toolbox pension funds can use, suggesting that scale would allow for this.

As the UK government points to Canada’s largest eight pension funds as examples of how the LGPS and DC schemes look and invest, one ‘Maple 8’ fund sees the need to be clear about the mission of pension funds. Clarity of purpose, for example through legislation, is needed, said Mei Mavin, head of global corporate communications at CPP Investments, speaking on a panel at the same conference on Wednesday. The Canada Pension Plan Investment Board Act requires the fund to achieve a maximum rate of return, without undue risk of loss, and be sustainable for future generations. 

 

She highlighted “the clear mandates that the [Canadian] pension funds have. It's very clear we have our Act, it's on the website, it's there, people know what it is. Having that clarity of mandate and purpose is really important.”  

The Canadian government created CPPIB in 1997, increasing contributions and giving it an investment and financial sustainability mandate, after the country’s chief actuary had warned the CPP Fund would run out in 2015. 

The fund’s scale, which allows it to be a long-term investor holding illiquid assets, was not achieved overnight, Mavin pointed out. CPP Investments manages about CA$700bn (£375bn) as of last quarter.  

“We've only been investing for about 25 years. We received our first transfer of funds in 1999,” worth CA$12.1m, she explained. 

Much of the significant growth since then happened after 2006, when the fund decided to become an active manager.   

“We kind of scaled slowly and then quickly,” she noted, adding that CPP Investments also takes a “crawl, walk, run” approach to new types of assets. 

With increased scale comes a potential loss of focus on the object of the fund, Mavin warned.   

CPP Investments has eight offices in cities around the world. “One of the key things for us as we develop the kind of global footprint is making sure our colleagues globally understand who they're doing it for, and to remind everybody that you are investing for Canadian pensioners and that comes with it some extra layers of... reputation risk”, she said.   

“So many investors probably would love to invest in higher risk things because of the return... they need to also think about who we are, what we do and who we do it for,” she added.  

Others also pointed to members as being at the heart of pension funds’ purpose. Rachel Elwell, chief executive of the Border to Coast asset pool, highlighted that the average LGPS member is a 47-year-old woman working part-time, with the average pension worth £5,000 a year – as Elwell put it, an amount that can make the difference between having to claim means-tested benefits or not. 

Speaking on separate panel about LGPS pooling on Wednesday, Elwell praised the benefits of pooling but said it was important to recognise the existing strengths of the system. As the government is looking to give pools greater powers to take decisions on investment implementation, she stressed the importance of partner funds’ strategic input.  

“We are not just taking investment decisions in isolation of what partner funds want,” she said.  

However, she also noted that funds “really need to be able to talk to each other and sort out differences” to reap the benefits of pooling.  

One of the pools perhaps most closely aligned with the government’s vision the LGPS is the Local Pension Partnership, but unlike some of its peers, it only has three partner funds.  

Max Townshend, head of investment strategy at LPP Investments, admits alignment is easier with fewer masters to please.  

“If you want a best-in-class system, it might not be possible to accommodate the wishes of 86 funds,” he said, as he also stressed the need for different funds to make compromises where they have conflicting wishes.  

For Townshend, there is an opportunity for collaboration that goes beyond pooling, through initiatives like infrastructure platform GLIL, as he warns building out capability to provide advice and in-house management in full is unlikely to be achievable by March 2026. In the discussion to date, much of which was about the advice piece, there has not been enough focus on the challenges of creating in-house capability and running it, he thinks.  

“It's not as simple as just buying and selling equities and fixed income. Liquidity oversight and having a best-in-class robust process for managing cash flow risk is a very valuable but complicated exercise. And this is something we've been building incrementally since our inception in 2016,” he said. “To get there in 12 months I think will be challenging. It's by no means impossible, but it requires alignment of funds within the pool.”  

What should be the purpose of pension funds?