CPP, NBIM CEOs swap notes on leading through teams, not bureaucracy

In a high-level exchange between two of the world’s largest asset owners, CPP Investments’ chief executive John Graham shared a leadership lesson with Norges Bank Investment Management chief executive Nicolai Tangen: having an aligned senior team is one of the most critical things a leader can build.

Speaking in the latest episode of Tangen’s podcast, In Good Company, Graham spoke candidly of his tenure so far at the $564 billion fund and why he, “like most people”, ended up feeling like he was too slow in putting the senior team in place.  

“One thing I’ve also found is I’ve been in this role for over five years, it has gone by in a blink of an eye,” Graham said.

“Having a senior team that is aligned to where you want to go, that is as bought into the vision and the mandate of the organisation, will truly act as team one. We’ll be there to support each other and be there to support the organisation.

“I am a big believer that decisions should be made by the people who are closest to the information. So, how do we delegate to people, let’s say, on the investment side into the various geographies and asset classes, so they can make decisions, but ensuring that they are aligned?”

Graham ascended quickly to the top job in February 2021, after his predecessor Mark Machin resigned following his controversial travel to the United Arab Emirates for a COVID vaccine. Prior to that, he was CPP Investments’ global head of credit.

Within the first 12 months of his tenure, Graham filled several critical positions in the global leadership team including global head of credit in Andrew Edgell and global head of private equity Suyi Kim (though both have now departed the fund), as well as building out the regional leadership in Asia-Pacific.

Graham said it’s critical that pension leaders constantly interrogate their culture. Bureaucracy, he said, is put in place most of the time for “good reasons” but it’s their job to ensure that it is of an appropriate level.

“It just kind of takes on a life of its own, like a little Frankenstein that grows over time and gets fed and becomes unmanageable at some point,” he said.

“I found in this job, like once every so many years, [you have to] kind of hit a pause button and do a decluttering of the bureaucracy, because I’ve also learned that it only goes one way. You will not naturally de-bureaucratise.”

Another insight that Graham passed on to “young colleagues” is that a good investor must “know when to quit”.

“Any investor who says they haven’t been humbled is probably either taking a lot of risk or is not being overly truthful,” he said.

“You can’t diligence a bad investment into a good investment: spending another week is not going to turn a fundamentally bad investment into a good investment, and in fact you may just convince yourself that it is.

“You have to know when to back away from an investment. If I think about what mistakes I made and failures I had, it’s just this belief that… if you could just structure it [a bad investment] a little bit more, you could turn it into a good investment.”

Lessons in investments

Around investments, Graham said CPP Investments would rather miss some upside if there is an undue risk of loss in an investment, arguing that a pension is not a “wealth-maximising vehicle” and there will be pockets of global markets in which the fund won’t participate.

While CPP Investments doesn’t follow principles of blanket divestment, it continues to invest in oil and gas, for example,  it will deliberately shun certain areas based on risk considerations, such as direct exposure to cryptocurrency.

“At [Canadian] $800 billion – and it’s probably similar for you – there’s very little [investments] we don’t do,” Graham told Tangen in the podcast conversation.

“There’s some things we make a deliberate choice not to do. Take, from a geography perspective, we probably have exposure to 50 countries around the world, but we’re probably only really active in 12. We just can’t really be experts in every country around the world.

“We are not always maximising [performance]. When we think about the upside and the downside, there are times when we may give up a little bit of upside to protect the downside because… that’s more important for the liability stream.”

Graham said keeping stakeholders informed around its investment approach is a crucial part of ensuring CPP Investments stay transparent. The Canadian investor and NBIM have led the Top1000funds.com and CEM Benchmarking Global Pension Transparency Benchmark since the index began ranking individual funds in 2022.

NBIM has retained the title of world’s most transparent pension fund since 2023 across the overall score, as well as in cost, governance, performance and responsible investments transparency. 

“We have taken an approach to disclose at a level that is even beyond what is required under the CPPIB Act, with a view that Canadians should understand how their money is being invested and the cost base we have,” Graham said.

One of the defining characteristics of Canadian pension funds which have helped drive costs down is internalising a significant portion of private market investments, underpinned by a sound governance structure which enables independent investment decision-making, clear accountability and attractive compensation for talent.

But responding to a question from Tangen on whether internal staff or external managers can produce better returns in private markets, Graham said the two teams do not have a competitive relationship as the industry may commonly perceive.

“I think it’s hard to say who does better, because your internal teams are benefiting from the origination and the asset management of the external teams,” Graham said.

CPP Investments has a “hybrid model” to private markets management, according to Graham.

“We do invest in private equity managers around the world who we think are the best investors in their space, and then we do co-investing and co-underwriting with them,” he said.

“Some other programs, like infrastructure and energy, historically we may have been a little bit more direct, but we certainly do have some kind of external relationships.

“I actually think what’s important is to mash them together and look at the blended returns up to, as opposed to think of them as two separate competing investment strategies.”