CBC falls prey to CPPIB's spin doctors

I hate to kick off the New Year blogging cycle, our 8th year of flailing effort, with yet another post about the Canada Pension Plan Investment Board. Despite the fact that the team manages $170 billion of our citizen’s retirement capital, there is a paucity of critical review – beyond this space – about the true performance of the agency. The coverage rarely exceeds anything more than ill-informed cheerleading, as was evidenced yet again by the article published on the CBC website a couple of days ago.

According to the CBC’s Sean Davidson, it seems that CPPIB experienced “explosive growth” last year, and that we beneficiaries “did rather well” via our stakes in a Chilean toll road, Rolls Royce plc and Australian shopping malls.

Interesting timing. The CPPIB’s media team may well have been in outbound marketing mode to drum up some positive press in early 2013, what with the poor finish to 2012 (see prior post “BNN interview regarding secrecy at CPP Investment Board” Dec 21-12). Here’s what the CBC thinks to be true:

Whether they realized it or not, many Canadians did rather well in 2012 investing in companies that included Nintendo, Rolls Royce and MasterCard.

The odds are also good that many of us will one day reap the benefits of our holdings in Australian shopping malls, toll roads in Chile and the sale of a $964-million stake in Skype, which were just three of the more notable deals that passed last year through the ledgers of the Canada Pension Plan.

The fund behind Canada’s largest single-purpose pension was worth just over $170 billion by the end of 2012, up from some $152 billion in 2011, partly on the strength of investments that include overseas real estate and infrastructure, according to the Canada Pension Plan Investment Board.

I hate to be a stickler for accuracy, but since the CBC has a billion dollar annual budget I would have hoped they would have known that the Skype deal came together in May 2011 (see CBC’s own article on same), and surely can no longer count as a “noteable deal” for “last year”. If so, the hundreds of millions of dollars that the CPPIB lost as a result of the bankruptcy of EMI (see prior post “EMI’s bankruptcy pain felt in Canada” Feb. 2-11) should also merit mention; not that the CPPIB will publicly disclose to my Business News Network colleagues exactly how much we lost on EMI, mind you.

That’s the strange thing about the CPPIB’s media disclosure “policies”. Good news is released, time and again, but bad news is left to the efforts of external analysts.

As for the marquee international investments cited by the CBC, as my wife reminds me, we CPPIB beneficiaries can’t have “done rather well” if we haven’t actually sold the toll road, car company or shopping mall in question. Paper gains are tough to eat, as every investor well knows.

The bigger problem with the piece is that the journos and headline writers seemed to misunderstand what the CPPIB’s own financial data means, despite the fact that the expert interviewed by Mr. Davidson tried to reinforce the message in simple terms:

“The growth of the overall asset pool has been meaningfully moved along by actual contributions versus market growth,” says Taylor.

You got that?

What the CBC headline referred to as “explosive growth” “largely owing to shrewd investments abroad”, according to BMO, “been meaningfully moved along by actual [pension] contributions versus [investment performance]. To put it more simply, a majority of the recent growth in the CPP’s asset base has come from our payroll contributions, not asset-picking by our fund’s managers. Kinda like your RRSP or RESP growing primarily as a result of your annual contributions, not the returns from your mutual fund choices.

Did the CBC not understand the main point of their own on-the-record interview?

Here’s the math over the last four audited financial years, since that’s how the CPPIB’s own benchmark is measured (even though the CBC used the Sept. 2012 asset figure of $170.1 billion, which is the midpoint of CPPIB’s 2013 financial year end):

CPPIB assets as at March 2008: $122.7 billion
Canada Pension Plan contributions: $29.1 billion
Canada Pension plan payments: $22.6 billion
Net loss from CPPIB performance: $23.8 billion
Net increase / (decrease) in assets: ($17.2) billion
CPPIB assets as at March 2009: $105.5 billion

CPPIB assets as at March 2009: $105.5 billion
Canada Pension Plan contributions: $30.3 billion
Canada Pension plan payments: $24.2 billion
Net income from CPPIB performance: $16.0 billion
Net increase / (decrease) in assets: $22.1 billion
CPPIB assets as at March 2010: $127.6 billion

CPPIB assets as at March 2010: $127.6 billion
Canada Pension Plan contributions: $30.9 billion
Canada Pension plan payments: $25.5 billion
Net income from CPPIB performance: $15.2 billion
Net increase / (decrease) in assets: $20.6 billion
CPPIB assets as at March 2011: $148.2 billion

CPPIB assets as at March 2011: $148.2 billion
Canada Pension Plan contributions: $32.3 billion
Canada Pension Plan payments: $28.3 billion
Net Income from CPPIB performance: $9.5 billion
Net increase / (decrease) in assets: $13.4 billion
CPPIB assets as at March 2012: $161.6 billion

According to the last four years of CPPIB financial statements, assets have grown by $38 9 billion. Of that ~$39 billion of growth, $16.9 billion of it came via investment performance.

A tidy 43%.

The rest of the asset growth (57%) over this period came from money that was deducted from our paycheques and contributed by Canadian employers.

According to the CBC story, CPPIB’s recent growth is “largely owing to shrewd investments abroad”. Nice spin by the CPP team, but that’s not really true. The fund’s growth has been “explosive”, all right. But Canadian workers have contributed the lion’s share of the growth over the recent cycle.

Up tomorrow: the truly explosive growth of the personnel costs to manage CPPIB’s funds.

MRM