Investor Profile

CN takes on tech in hunt for talent

Montreal-based CN Investment Division’s recent search for a quantitative analyst in its absolute return team is a timely reminder that pension funds must now align with the tech sector on compensation, culture and work environment to secure talent.

When Marlene Puffer, president and chief executive at the division which manages the $18 billion pension fund for Canadian National, Canada’s freight rail group, reached out to her network enquiring after candidates she was more conscious than ever that she was going head to head with the tech and start up sectors.

“They recruit for similar talent,” she said. “The financial sector is not as obvious a draw for a business school or STEM graduate as it used to be, but it should be. We need to explain the great opportunities in order to be able to attract and retain talent.”

Puffer, whose role spans everything from using her network to help field candidates for the 40-strong investment team to writing the annual report or getting into the weeds of a private equity decision, believes CNID has that pulling power.

Compensation involves a “competitive salary plus a variable component where investment professionals get paid well when performance is strong” in a model, she says, that keeps “reasonable pace” with top-paying Canadian peers.

Montreal’s ability to compete with global financial or tech centres is bolstered by locals returning home after pursuing careers elsewhere. As for culture, she believes CNID’s size, sophistication and long history of internal management offers a sweet spot that allows the investment team to evolve, ensuring individual portfolio managers can really have an impact.


CNID’s ability to recruit top talent also comes down to governance. Much of its ability to ensure good ideas are implemented without lengthy and arduous processes (at least in public markets – it takes longer in private markets) comes from the board.

It’s an area where Puffer has real expertise following a nine-year stint as chair of the asset liability management committee at $74 billion Healthcare of Ontario Pension Plan (HOOP).

It meant investment decisions and investment-related initiatives come through her on route to going to the board for approval. The experience has given her inside knowledge on how boards work – particularly the investment approval process – and left her convinced that open and transparent communication between the board and investment team is one of a pension fund’s most important pillars.

“I am bringing all my experience on the board at HOOP to bear in the context of reporting to the board. I am very familiar with board concerns and I have a pretty good idea how to be proactive and provide the right information for them to make informed decisions.”

At CNID, board education resides with the investment team. When something is new and different, like the quant strategies in the absolute return fund, it can require several steppingstone meetings ahead of any decision, she says.

Set up in 1935, serving 50,000 members most of whom are retired, CNID is one of the most mature, open pension funds around. The asset mix and risk profile are shaped around the constraints of paying out around $1 billion a year in benefits.

It means the backbone to Puffer’s asset liability and risk management strategy resides in a large bond portfolio that provides a liquidity pool on an ongoing basis.

“Because our plan is very mature, our portfolio is probably a little lower on public equity and private and illiquid return-seeking assets than other plans, and higher on fixed income, and we include absolute return strategies as a core part of our long-term asset mix, ”she says.


CNID’s equity allocation, all actively managed, has seen some of the biggest changes in recent years. Geographic silos in five portfolios (Canada, US, Asia, Europe and emerging markets) have been shifted to one global benchmark, MSCI All Country World Index, while bottom-up research is organised globally by sector.

The old system based on geography was a legacy stemming from when Canadian pension funds’ foreign investments were restricted prior to 2004, she explains. Although Canadian asset managers have run their equity allocations globally for a while, pension funds have been slower to change.

“It’s more efficient because we are not duplicating efforts within sectors, and the focus on the total equity portfolio outperforming its benchmark is clearer.”

Elsewhere she notes that current portfolio strategy is erring on the defensive side given today’s market conditions. But rather than adjust the long-term asset mix in response, she prefers to tactically position within asset classes. For example, CNID’s actively managed, bottom-up, fundamental analysis of individual companies with a long investment horizon has a very successful track record, and still offers exciting opportunities.

“We can always find some value in individual businesses with a long-term view,” she says.

She is also examining the diversification benefits of private equity in light of current markets. CNID currently has a small allocation to private equity, mostly because of its liquidity priorities.

“My view of private equity is to focus on its ability to offer some access to different business models currently unavailable in public markets, rather than seeing it as a distinct asset class. But that opportunity set comes with a heavy fee structure, and you have to wade through this very carefully.”

She also continues to see opportunities in private debt in the US as bank disintermediation continues to play out.

“There are opportunities within private debt resulting from the regulatory change since the financial crisis such as leveraged loans, SME enterprise lending, peer-to-peer lending.”

Internal management

CNID’s long history of internal management means the bulk of assets are now internally managed, setting the fund apart from peers.

“Most peers of our size in the North American market would either be primarily externally managed or may manage their fixed income or foreign exchange internally.”

Much of CNID’s internal expertise has been drawn from its manager relationships over the years, all shaped around CNID’s quest for strategic advice and knowledge sharing.

“When we have a new idea, we may engage our external managers and build parallel internal strategies. We may eventually wholly internalise the strategy. We are transparent about our needs and have positive, constructive relationships.”

Currently visible in building out the diverse, factor-based quant team which she very much considers “our own,” but which has also been developed and crafted with the help of external managers relationships.

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